What Would the Emergency Powers Act Mean for Life Insurance Policies?

Compensation for illness and death is paid based on the terms of the insurance policy. Few policies include exclusions concerning COVID-19, also known as the coronavirus, or concerning pandemics in general, but the Finnish Emergency Powers Act could be used to intervene in the insurance sector.

With the spread of the coronavirus, there has been intense debate in the Finnish government concerning whether to invoke the Emergency Powers Act. Pandemics are one of the grounds for invoking the act, and it would give the authorities exceptional powers to safeguard the country’s population and protect its economy.

Solvency Risk in Public Health Emergencies

Public health emergencies increase and change insurance risks in a way that could not be taken into account when entering into the insurance agreement. A dangerous infectious disease like the coronavirus could increase the number of insured events in a way that the insurance company could not foresee.

In extreme circumstances, a substantial increase in insurance pay-outs could put the solvency of life insurance companies at risk. The knock-on effects of poor solvency among life insurance companies would be a serious threat to the stability of both the insurance and financial markets.

Both Insurers and Policyholders Could Delay Payments

Keeping the functions of society running in an emergency also requires that the insurance industry is able to handle its duties in the exceptional circumstances. If the Emergency Powers Act is invoked, it would be possible to amend life insurance terms so that, for example, the payment of benefits would be postponed in full or in part.

Correspondingly, in order to secure the livelihood of the Finnish population, policyholders could put off the payment of insurance premiums. The right of both insurers and policyholders to invoke certain insurance clauses could also be restricted if compliance with the term would be unreasonable given the prevailing emergency.

When faced by misfortune, a life insurance policy can have a major impact on a household’s livelihood. It is important that insurance coverage and the payment of benefits and compensation are continue as extensively as possible in view of the circumstances.