Progress on new mortality tables suggests that updated reserving guidelines may be in place by March 2002 and that new tables could lead to a broad reassessment of products currently offered and even a reevaluation of commissions paid to producers, according to interviews.
James Van Elsen of Van Elsen Consulting in Colfax, Iowa, predicted that new Commissioners Standard Ordinary mortality tables will result in a repricing of products. And if insurers have to reprice, he says, then “companies will be rethinking their portfolios.”
Insurers could reposition themselves in the marketplace as they rethink their product lines, he notes.
Producers’ compensation could be affected because with lower mortality calculations, the amount of funding for a policy may be lower, Van Elsen adds. Lower margins will also leave less available for costs such as commissions, he says.
The new tables will impact the definition of insurance as well as the tax-free inside buildup in the product. The definition of insurance determines what is considered insurance protection and when contributions fall outside that protection.
Because of the very important implications of implementing new tables, Van Elsen says it is necessary to make sure that wording used to establish variations of mortality classes from existing categories such as smoker, nonsmoker and aggregate to other categories such as age last and unisex be very precise.
This is particularly so for the definition of insurance, he says. “I would hate for the IRS to decide five years from now that not everything that was sold is insurance. That is just a mess we don’t want to have.”
The work that has been completed on the draft for new CSO Mortality Tables is “very encouraging,” he says.
Regulators and insurers intend to further review the draft tables during the fall meeting of the National Association of Insurance Commissioners in Boston next week. (At press time, it was still to be determined if the meeting would be held as scheduled following the World Trade Center disaster.)
The table could be moved through the NAIC and adopted in March. If the table is adopted by the NAIC, it could start going into effect in states after Jan. 1, 2003.
Among the products that Van Elsen predicts will be affected are permanent products because of the lower allowed funding. Additionally, he says, there could be an extension of guarantees for term products beyond 20 years, although not necessarily a reduction in premiums.
Van Elsen also says universal life insurance may become more term-like because of the definition of insurance and resulting reserving guidelines.
Van Elsen points out that the changes in the new table would not be “a death blow to any [product] line.”
Larry Gorski, chief actuary with the Illinois insurance department says that any time mortality standards are changed, there is a review of products.
The main concern of regulators in making these changes, he says, is how reserving impacts and ensures solvency.
He says there should be a “logical consistency” for reserving for basic and minimum reserves. So, if select and ultimate mortality are used they should be used for both reserves. A company using select and ultimate mortality would have to use them in both cases. Using select mortality rather than just ultimate mortality would result in higher reserve requirements.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.