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.