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Riders Keep on Expanding, Innovating

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As a widower, I do my own grocery shopping. Im determined to stick to my list of basic staples. But the impulse buying takes over, and I come home loaded with exotics. Theyre good, too!

Thats the way it is with the riders in the life and health insurance industry. They are not the staples. They are the impulse purchases, and they are usually good. (And, as is true for the grocery stores, the corporate profits come from these impulse purchases, not the staples.)

To test the waters on rider activity in the past year, I surveyed several very large insurers in the 2nd quarter of 2004. More companies responded this year than in 2001 when we did our last survey on riders. That was my first clue that the riders market is on the move.

The results indicate that rider variety is very strong. In fact, the available selection, which has always been vast, appears to be even vaster.

That is because some “new and exotic” riders have joined the bountiful list of traditional riders. The chart illustrates the point. These are among the riders that caught my attention in the 2004 survey. The list includes both old and new designs, but all received frequent mentions. Ill discuss a few that have piqued my interest.

Paid-up additions riders for whole life are not new, but they are now getting more mentions in my surveysa possible indication that insurers may be using these riders more than in the past. That tracks with the renewed interest in whole life insurance, which has emerged in some markets.

Another example: In the past several years, universal life carriers have been offering no-lapse protection in periods of 1 year, 5 years and more. But now, the carriers increasingly are offering lapse protection riders at the higher issue ages, too. This is designed to correct a long-time design flaw in ULits tendency to lapse at very high ages, somewhere around 100.

The unemployment rider is really exotic. A few of those showed up during the recession in the early 1990sallowing penalty-free withdrawals from annuities in the event of unemployment, for examplebut they seemed to go off the radar screen as the economy exploded in the mid-1990s. Now, a new variant is back, showing up as riders for whole life policies.

You cant look at riders without looking first at the chassis products to which they are attached. In order of number of mentions by survey participants, the policy types getting the most rider attention in the 2004 survey were: universal life, traditional life, variable universal life, variable annuity, and (more distantly) long term care.

The frequent mention of survivorship life riders was a bit of a surprise in view of the flattening in sales of survivorship policies in recent years. But then, the companies may be issuing more riders for these products in a move to stimulate new sales.

On the opposite side of the coin: Riders for individual critical illness and disability insurance policies hardly got a mention.

A few words about the life insurance riders in general. In reviewing the full range of traditional riders the industry is offering for life insurance policies, there were no surprises. The old friends showed up in great numbers and in their usual order of pervasiveness: disability waiver of premium, followed by spouse and child, and then level term. (These riders are not broke, so dont fix them.) The terminal illness accelerated death benefit rider is very common, too, and is virtually a free “throw-in” in most life policies today.

However, a very old traditional life riderthe accidental death benefit riderseems to have waned a bit. It received fewer mentions than in the 2001 survey. Perhaps this reflects the industrys preference for selling full coverage to upper-income customers, as opposed to base-policy-plus-double-indemnity plans to the lower-middle market.

However, as stated earlier, the real news for the business is that the rider numbers are expanding, and some of them are innovative designs. This proves ingenuity is still alive in the insurance businessand it suggests the industrys “do-nothing mode” of the previous 3 years may finally be ending.

John M. Bragg, FSA, ACAS, MAAA, is actuarial consultant at John M. Bragg and Associates, Atlanta; past president of Society of Actuaries; and past CEO of Life Insurance Company of Georgia. His e-mail is [email protected].

Reproduced from National Underwriter Edition, June 4, 2004. Copyright 2004 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.


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