November 20 2005 Sunday

Washington Post

By Albert B. Crenshaw

Early this year then-newly elected Rep. Debbie Wasserman Schultz (D-Fla.), mother of three small children, decided it would be a good idea to boost her life-insurance coverage. So she applied to the American General Life unit of American International Group (AIG) to buy more.

Denied, said American General.

"We are unable to approve the policy . . . because of potential travel to Israel," the company said in its rejection letter. "We will be able to reconsider this decision once you have returned from Israel and there are no future plans to travel to countries of concern."

Apparently, Wasserman Schultz had checked a box on the application indicating Israel was a place she might visit. "I had no plans to travel to Israel," she said last week at a session of the House Financial Services Committee, which was considering a bill to extend the federal Terrorism Risk Insurance Act (TRIA).

"Historically, life insurance was life insurance, no matter where you died," said J. Robert Hunter, director of insurance for the Consumer Federation of America.

But rejections based on travel to countries insurers evidently consider risky are becoming increasingly common, and some of the rejected applicants, including Wasserman Schultz, are wondering whether the risks involved justify the practice.

Other members of the Financial Services panel evidently shared her view. By voice vote they added to the TRIA bill an amendment proposed by Wasserman Schultz forbidding insurers to deny coverage or charge more on the basis of travel unless they can show that such action is actuarially defensible.

"Companies should be allowed to price for risk; however, we should not allow companies to simply deny Americans life insurance based solely upon possible travel," she said later. "After all, they sell policies to sky divers and smokers."

AIG declined comment, referring questions to the American Council of Life Insurers (ACLI), an industry organization here.

Denials of coverage based on travel have already become an issue in some states.

Earlier this year, the Maryland legislature banned the practice. Other states that have imposed restrictions include New York, California, Illinois and Washington state.

The Maryland statute, which took effect Oct. 1, specifies that "an insurer may not refuse to insure, refuse to continue to insure, limit the amount or extent or kind of coverage available to an individual, or charge an individual a different rate for the same coverage solely for reasons associated with an applicant's or insured's past lawful travel experiences."

And the National Association of Insurance Commissioners, an organization of state regulators that, among other things, draws up model laws and rules that states may use, has put the issue of travel restrictions on its agenda for committee discussion next month.

ACLI spokesman Jack Dolan said the group doesn't comment on business practices of individual companies, but in general travel "is just one piece of information that is perhaps used" in deciding whether to insure an individual.

Companies "have just one shot" at deciding to insure, Dolan said. "It's a long-term contract" so they try to elicit information that will give them a picture of the applicant's riskiness over an extended period, he said, adding that "there is publicly available data that does clearly point out there are higher risks, a greater likelihood of dying when traveling outside the U.S., as opposed to traveling in the U.S."

Dolan also said that a large number of companies write life insurance, and a consumer who is turned down by one may be able to get coverage from another. "There are some [companies] that are willing to accept more risk than others," he said.

But Wasserman Schultz and others argue that refusing to sell insurance to Americans who have may traveled to locations where they are legally permitted to go amounts to giving in to terrorists. They say it also sends the wrong message to and about Israel and other of America's allies: that they are too dangerous to visit.

Wasserman Schultz said the rate of "intentional deaths" is actually higher in this country than in Israel. But her amendment also would allow carriers to boost prices for additional risks if they can show by "good faith actuarial analysis" that they exist.

The TRIA extension, to which her amendment is attached, is something insurers, especially property carriers, want very much to see passed, but it puts the life insurers in a somewhat awkward position. The House bill, which is awaiting floor action, also includes a provision expanding the federal terrorism backstop to group life insurance. Neither that provision nor Wasserman Schultz's is included in the TRIA measure passed by the Senate last week.

Further, the Bush administration strongly opposes including group life in TRIA.

So life insurance lobbyists will now be seeking to snuff out the Wasserman Schultz amendment without losing the group life provision and without derailing the whole bill.

Assuming they succeed, consumers should remember that insurance regulation is primarily a state matter. Therefore, those who think using travel as an underwriting criterion is unfair or improper should make their views known to their state insurance regulator and state legislators.

At the least, insurers who think there is too much risk should be required to prove it.

Right now, without selling insurance to people who travel to "dangerous" countries and therefore without collecting data, companies may just be assuming that they'd have greater losses, CFA's Hunter said.

"Insurance companies operate more on fear than anything else. They're risk avoiders," he said.