Life Insurers Say "Infectious Diseases Should Be Excluded from Disasters"... Authorities Respond "Infectious Diseases Are Disasters"

Life Insurers Pay Infectious Disease Disaster Death Benefits
Different from Non-Life Insurers Classifying as 'Disease'

On the first day of the Level 4 social distancing measures in the Seoul metropolitan area to prevent the spread of COVID-19, citizens are waiting for testing at a temporary screening clinic set up at Seoul Station Plaza on the 12th. Photo by Moon Honam munonam@

[Asia Economy Reporter Oh Hyung-gil] Financial authorities have rejected the life insurance industry's request to exclude infectious diseases such as COVID-19 from the disaster conditions required for insurance payouts. They maintained their original stance that infectious diseases are fully covered under the general death coverage, which is a basic guarantee in life insurance.

Accordingly, non-life insurance companies, which classify infectious diseases as ‘illnesses,’ cannot pay accidental death insurance benefits, but life insurance companies, which define them as ‘disasters,’ can continue to pay accidental death insurance benefits as before.

According to the insurance industry on the 12th, the life insurance sector recently proposed to financial authorities to separate the current standard clause disaster classification table into a disaster classification table excluding infectious diseases and an infectious disease classification table for operation. The current life insurance standard clause recognizes first-class infectious diseases as disasters as defined by the Infectious Disease Control and Prevention Act. The life insurance industry complained that including diseases like infectious diseases in disasters makes risk management difficult.

Before the outbreak of COVID-19, the existing disaster classification table excluded ‘U-code’ diseases?temporarily assigned to new diseases with uncertain causes?from disaster coverage. However, this caused some infectious diseases like COVID-19, which are first-class infectious diseases, to fall under the U-code category. In response, financial authorities revised the classification table in July last year to cover all first-class infectious diseases as disasters.

Until now, life insurers have paid accidental death insurance benefits for deaths caused by COVID-19 according to this classification table. Generally, accidental death insurance benefits are reported to be more than twice the amount of general death insurance benefits.

The life insurance industry argued that first-class infectious diseases, which should be covered as disasters, need to be classified separately because it is impossible to predict the types or risks that may occur in the future. In particular, since the Director of the Korea Disease Control and Prevention Agency can designate additional first-class infectious diseases at any time, there may be situations where infectious diseases not covered at the time of insurance subscription must be covered later. From the insurer’s perspective, this creates an unexpected burden variable.

Some argue that the difference in interpretation with non-life insurance should be eliminated. Non-life insurance views injury as a ‘sudden and accidental external accident,’ so infectious diseases are interpreted as illnesses, not injuries.

Considering this, the industry conveyed to authorities the opinion that infectious diseases should be separately classified in the disaster classification table so that insurers can choose and use classification tables suitable for product development purposes and risk management.

However, the authorities concluded that "considering the traditional meaning of disasters in life insurance, consumers’ reasonable expectations, and the purpose of compensation, first-class infectious diseases fall under disaster coverage." Since disasters in life insurance mean ‘accidental external accidents,’ infectious diseases are also considered disasters.

A financial authority official explained, "The fact that infectious diseases are fully covered under the general death coverage, which is basically guaranteed in life insurance, means that they can also be covered under disasters." He added, "Since disaster coverage is operated optionally for additional protection, insurers can manage risks themselves by adjusting subscription limits, etc."