New mortality tables, the 2001 CSO tables, are on the brink of becoming the new measure for product reserving, a fact that will have varying impacts on life insurance products and their sales.
Counts on how many states have adopted the 2001 CSO Tables range from 24 to 26. Twenty-six states are needed before the tables become the prevailing mortality tables used by the Internal Revenue Service and the life insurance industry.
The new tables will apply to new sales of life insurance. The new tables could impact the cash values allowed in certain products and what is considered life insurance, according to interviews.
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Jim Van Elsen of Van Elsen Consulting, Pella, Iowa, an actuary who was involved in the development of the tables, explained what the new tables could mean for different products.
Term insurance is “already dirt cheap,” he says, so there should not be a major impact on price. However, the tables should lower reserves, and lower reserves may reduce the need for reinsurance, Van Elsen adds.
Some companies, he says, are deciding to maintain the same rates and lengthen their guarantees for term products.
Whole life products could see a reduction of premiums but also a reduction of dividends paid, Van Elsen continues.
But universal life is “just going to be a mess,” Van Elsen says. “Companies will have to be creative just to make the product even marketable.” UL will have less cash value accumulation and will become more like term insurance, he says.
In general, he continues, “you will see actuaries tinkering with products.” However, he says, it should benefit consumers and companies.
Insurers contacted by National Underwriter explained what the adoption will mean to them.
Savings Bank Life Insurance Company, Woburn, Mass., which offers level term, was able to reduce rates from 3% to more than 40% in some cases, says Robert Sheridan, president and CEO. For instance, SBLI says the annual premium for a $500,000 20-year level term non-nicotine contract for a 40-year-old went from $425 in 1999 to $340 in 2004. The 1999 premium was before the advent of the Valuation of Life Insurance Policies model regulation, known as Guideline Triple-X. The 2004 rate is multi-class preferred plus.
In fourth-quarter 2003, SBLI readied its products for the change, he continues. Direct sales, which represent 85% of its business, saw leads increase to 9,300 in March 2004 up from its previous monthly high of 7,000, according to Sheridan. Conversions to sales were close to 50% in March compared with an average ranging from 4,000 to 5,000 a month, he adds.