With CSO Tables Due Soon, Insurers Advised To Take Stock Of Products
The development of new CSO Tables is an opportunity for companies to take stock of their product offerings and see how well the products fit, a Tillinghast-Towers Perrin executive told attendees gathered to hear about the impact of the new tables.
Noting the work that will be needed to integrate the new Tables into a company’s product portfolio and the resources it will take to achieve that goal, Rick Berry, a principal in Tillinghast’s New York office, says companies should rethink their products.
The “product rationalization” that Berry addressed includes goals such as rethinking product strategy and creating a better alignment of products with business strategy.
Business strategy, he continued, could address how products will be distributed and what markets are being targeted, he added. It could also entail filling gaps and eliminating redundancies, Berry said.
The new tables will lower reserves and the cost of insurance, he said, with the result that term insurance will be more competitive. There might be less of a need for rethinking charges and load structures and less of a need for offshore reinsurance solutions, Berry said.
During the seminar, the impact on products such as variable universal life was discussed. For instance, using a hypothetical VUL product as an example, Nancy Kenneally, a Tillinghast consultant, explained how the new CSO Table would, among other things, reduce the cost of insurance margins and could conceivably elminate maturity issues since a maturity age of 121 would be adopted under the new Tables (see NU, April 8.)
Given the changes that insurers could shortly face, Tillinghast conducted a survey to try to get a handle on what companies are using as a base for pricing mortality.
The survey, according to Doug Doll, a Tillinghast principal, found that 69% of respondents used the Society of Actuaries 1975-1980 mortality table for pricing while 12% used the SOA 1985-1990 table. Sixteen percent used a home grown table and 3% used a table developed by John M. Bragg & Associates, Atlanta.
The survey also indicated that only 23%, or six of a total 26 respondents, used mortality improvements in their pricing. Additional findings indicated that of those who used the SOA 1975-1980 table as a base, 29% used mortality improvements. The mortality improvements used were typically .5% to 1% per year for 10-20 years.
When asked if the valuation basic table, a building block for the CSO Table, would be used, most respondents said it was more likely that the industry would use the VBT rather than their own company.
Looking beyond what companies may immediately face, Michael Taht, a Tillinghast consultant in Atlanta, posed the rhetorical question of whether this would be the last CSO Table to be developed. The question was posed, according to Taht, not only because of the difficulty in getting experience data for this table but also because of the applicability of “a one-size-fits all table.” With a wide range of underwriting classes, the question of one table’s applicability to all products should be considered, he added.
At the end of the conference the question was raised again by John Fenton, a Tillinghast principal. The move toward federal regulation could determine whether there will be another CSO Table, Fenton said.
Although federal regulation is not likely to happen immediately, it is a possibility in 10 years or so, he added.
There is a growing realization, Fenton said, that the state regulatory structure is not efficient. In the future, there might be more of a focus on appropriate reserving methodologies rather than just the development of tables, he added.
Reproduced from National Underwriter Life & Health/Financial Services Edition, April 15, 2002. Copyright 2002 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.