Department of Labor Addresses Long-Standing Issue with Voluntary Life Insurance Premium Collection

The insurance industry has experienced a persistent challenge with voluntary life insurance: the collection of premiums for coverage amounts exceeding guarantee issue limits when evidence of insurability (EOI) is not approved. Recent developments suggest that regulatory bodies are taking steps to address this issue, potentially reshaping industry practices.

In a recent Bottom Line Thursday discussion with Brad Johnson, we covered a significant agreement reached between the Department of Labor (DOL) and Unum, a major insurance carrier. The agreement stipulates that if an insurance carrier has been collecting premiums for 90 days after an EOI submission, they can no longer challenge the evidence of insurability, even if it was initially denied.

This agreement is not unprecedented. In previous years, the DOL has reached similar arrangements with other prominent insurance carriers, including Prudential, Mutual of Omaha, and Lincoln. However, the approach appears to be piecemeal, addressing carriers individually rather than implementing a blanket nationwide rule.

The issue at hand often arises during open enrollment periods when employees elect coverage amounts exceeding guarantee issue limits. Problems occur when premiums are deducted from paychecks and remitted to insurance companies before the EOI process is completed and approved. In some cases, even after EOI denial, premium deductions continue, creating a complex situation for all parties involved.

Here are some of the complicating factors:

1. Enrollment System Challenges: The process of translating enrollment elections into payroll systems while awaiting EOI approval can lead to discrepancies.
2. Administrative Errors: In one cited example, a carrier lost all electronically submitted EOIs, requesting updates ten months later. This raised concerns about potential changes in applicants' health status during the interim.
3. Billing Methods: The distinction between list billing and self-billing can affect liability. In self-billing scenarios, where employers rely on their benefits administration systems, the responsibility may fall more heavily on the employer.
4. Varied EOI Collection Methods: Different carriers employ diverse methods for collecting EOI, including manual, electronic, and telephonic processes. The effectiveness of these processes may influence regulatory scrutiny.

While the current approach involves addressing carriers individually, we believe a nationwide rule may be on the horizon. Such a rule could provide clarity and consistency across the industry, potentially alleviating long-standing issues in voluntary life insurance administration.

The ongoing developments in voluntary life insurance premium collection and EOI processing underscore the need for increased vigilance and adaptability within the industry. Insurance carriers, employers, and benefits administrators should closely monitor these regulatory changes and be prepared to adjust their practices accordingly. As the DOL continues to address these issues, it's likely that more standardized procedures will emerge, potentially leading to more transparent and efficient processes for all stakeholders involved in voluntary life insurance programs.

Watch the full discussion here - https://youtu.be/J1mIhP4q5Xw