Risky no-lapse guarantees for variable life insurance products are a “disturbing cloud” on the horizon of the life insurance industry, according to the head of New York Life Insurance Company.[@@]

“About 65% of no-lapse guarantee products have done well,” Sy Sternberg, chairman and chief executive officer of New York Life, said during this week’s LIMRA International annual meeting in New York. “But the other 35% have blown up. If you’re going to use the word ?guarantee,’ you’d better do better than 65%.”

[New York Life does offer a number of products with a no-lapse option. No-lapse guarantees, often available as a rider to variable universal life policies, keep the policy from lapsing as a result of poor investment performance, as long as the holder keeps up premium payments.]

Sternberg said too many policies carry guarantees that carriers may ultimately find difficult to back up.

“In the insurance industry, it takes 10 to 15 years to see the results of a bad decision,” he said. “It scares me and concerns me to see so many guarantees out there.”

Sternberg pledged his company always would price and underwrite guaranteed products responsibly.

“We will be there to keep our promises,” he vowed.

Sternberg also told the audience that New York Life would remain committed to its propriety agency system.

One reason: An agency system is responsive to shifts demanded by market conditions, he said.

“It is much more difficult to direct a brokerage to your strategies,” he explained. “And an agency does for your brand what a broker cannot. Every one of our offices all over the U.S. says New York Life.”

The company has 125 agencies and 8,000 agents in the U.S. and another 16,000 agents in 18 worldwide markets, Sternberg said.

“Our proprietary distribution system is valued at over $2 billion,” he declared. “Why would we walk away from $2 billion in value?”

New York Life does supplement its agency system with other channels “when it makes sense,” he said.

It continues to sell high-end life insurance products, including corporate-owned and bank-owned life insurance policies, through insurance brokers, he said. In addition, it sells mutual funds through stock brokers and financial advisors and annuities through stock brokers and banks. It also continues to use direct mail to market low-end life products through the American Association of Retired Persons, Washington.