Survey Indicates Some Insurers Might Limit Product Guarantees
The investment slump of the past few years may have changed the way U.S. life insurance executives think about embedding minimum guaranteed rates of return in their products.
When Tillinghast-Towers Perrin, New York, conducted an informal survey of 26 life insurance company chief financial officers, it found that nearly one-third said their companies might limit sales of life insurance and annuity product guarantees in the next six to 12 months.
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Thirty-two percent of the participating CFOs said their companies were responding to capital constraints and concerns about risk exposure by making plans to limit sales of some product guarantees in the near future. Eighty-four percent said their companies were revising product designs and product guarantees.
Fifty-three percent said their companies were thinking about changing product pricing, and 63% said their companies were adopting more extensive scenario testing.
In recent years, “insurance companies have focused on guarantees as a way to differentiate themselves in the marketplace and gain access to distribution,” Tillinghast researchers write in a summary of the survey results. “However, companies are finding that they need to be more strategic in their design and use of product guarantees to ensure they are meeting customer needs and their own financial objectives.”
Tillinghast researchers say the CFOs who participated in their survey agree that features such as guaranteed annuity death benefits and universal life no-lapse guarantees help their companies compete for business.