According to the U.N. World Tourism Organization, travel, which slumped markedly during the pandemic, is currently at close to 80% of pre-pandemic levels. And with an average of about 93 million people living in the U.S. alone taking outbound trips each year, that’s a lot of travel – and a lot of potential risk.
What, exactly, is foreign location risk? For insurers, it consists of two primary factors: the risk of pricing misestimation when underwriting a policy and of possible fraud when a death claim is reported, whether a citizen or a foreign national, while an insured is out of the country.
Foreign location risk is also one of the more complex aspects of life insurance, a challenge exemplified in the U.S. market. As one does not have to be a citizen or even a green card holder in order to buy insurance in the U.S., the policy purchase and any subsequent claim can be subject to several risk factors that are essential for insurers to be aware of and understand.
On the underwriting side, the main question is whether the policy was priced correctly for the inherent risk. Risk differs from country to country, depending on factors as broad-ranging as corruption, population economic inequality, political instability, and terrorism risk, which can include kidnapping and gang activities. Someone from Sudan or Haiti, or traveling to those countries, will have a far different risk profile than someone living in Morocco, Berlin, or Los Angeles. The U.S. government’s Gini Index, which lists relative levels of income inequality for 205 countries, is an accepted means of helping to gauge such risk.
As purchase of insurance by non-U.S. citizens has few restrictions, the risk can be unusually challenging to ascertain, especially when travel is involved. Has the applicant been forthcoming with the information that would enable a proper assessment of their mortality risk? If the applicant is a U.S. resident, whether citizen or foreign national, who travels frequently for business or personal reasons, insurers need this information to account for the risk of the countries to which the travel takes place, as well as the rules in the U.S. state where the applicant resides around incorporating that risk. Similarly, if a foreign national does not fully disclose whether they intend to move back to their home country, the policy can be mispriced.
Claim time can yield an additional and equally sizable batch of questions, such as: Where, when, and how did the insured die? Is acceptable proof of death – that it occurred, as well as date, cause, and location – available? Not every country requires a death certificate upon death, and those that do may only provide it in the native language. If an investigator needs to be sent, are there investigators sufficiently familiar with the country, its death recordkeeping regulations, and local cultural or religious customs to ask the right questions and acquire the necessary information to confirm the death? Whether or not it is safe to send the investigator is yet another factor. Finally, did the insured, in fact, die? While the majority of death claims are legitimate, in countries where regulations around recording death can be sparse, verifying a death can be challenging. In addition to the aforementioned Gini Index, the Corruptions Perception Index published by Transparency International measures perceived levels of public sector corruption in specific countries. It is another tool that may assist with measuring the risk of a specific location and whether documentation may be fraudulent.
Wars, whether military or gang-perpetrated, add yet another layer of risk and complexity to a claim. In countries such as Ukraine, which has been at war for more than a year and a half, or Nigeria, which experiences substantial terrorist activity from the Islamist group Boko Haram, reported traveler deaths likely merit additional scrutiny.
Both natural and man-made global impact events, such as earthquakes, 9/11, or pandemics, can also be fertile soil for claims fraud. Scammers and fraudsters may come out of nowhere to take advantage of the tragedy and falsely claim they or someone they knew perished.
What this means is that to mitigate foreign location claims risk, every claim, without exception, must be carefully scrutinized and investigated. The depth and breadth of the investigation will vary based on the facts of each specific case.
Clearly, location risk involves a myriad of factors. Insurers must remain constantly aware that the risks are always shifting, which requires adapting emerging best practices while ensuring that strong and well-researched guidelines for underwriting and claims remain in place.
Those involved in underwriting and assessing claims for international risk should be properly trained and knowledgeable. Furthermore, underwriters and claims assessors can benefit from collaboration, as the underwriters generally know where the risks are, which can help smooth claims processes.
Finally, red flags, no matter how plentiful, do not necessarily mean fraud. They do, however, call for underwriters and claims assessors to ask more questions and conduct more research. Accounting for foreign location risk requires substantial legwork in both underwriting and claims management, but it is worth the effort in order to effectively identify and prevent fraud. In fact, many U.S. states require the preparation and/or submission of an antifraud plan and that suspected fraud be reported. Doing it right means applications can be assessed and priced accurately, legitimate claims can be paid, and all stakeholders can be protected from the costs of misrepresentation and false claims.
An often overlooked resource for information and assistance with foreign location risk is your reinsurer. For additional information regarding mitigating this risk during underwriting or at time of a claim, please do not hesitate to contact RGA.
