Its hard to be absolutely certain, but I believe that with the formation of the Affordable Life Insurance Alliance we have witnessed a first for the life insurance business. This, surely, has got to be the first and only trade group to have as its focus a preferred method of reserving.
Actuaries all over the countryand once the news spreads, the worldhave got to be rejoicing that one of their gut issues has been taken up by a group of companies with a passion.
But if you turn to Jim Connollys page 7 story on the Alliances launch, you will see that the powers-that-be behind the new group dont dwell unnecessarily on the arcana of reserving formulas. Rather, they have chosen to stress the benefits of their preferred method of reserving, minus the technical jargon.
It all starts with the namethe Affordable Life Insurance Alliance. Affordable is such a sweet word, one that is music to most consumers ears. Indeed, the only word that I can think of with more musical charms for the public is cheap. But affordable does quite nicely, thank you. Additionally, its one of those words that is hard to oppose. No company, after all, wants to be labeled as selling unaffordable life insurance.
Other benefits? As articulated by Jefferson-Pilots Dennis Glass, co-chair of the Alliance, the group wants to ensure that “Americans have safe and affordable insurance.” Its member companies want to offer “properly reserved, innovative, affordable life insurance products.”
So, you have safe and innovativetwo more words the benefits of which are very difficult to argue with. And youve got affordable in tow with both of them.
Mr. Glass co-chair, Protective Lifes John D. Johns, said that “excessively redundant reserves” could discourage product innovation without providing additional solvency benefits.
Both excessive and redundant are bad words, easy to oppose separately, and a no-brainer when combined.
This is so well done that I have to believe some very clever and professional marketers were involved in the Alliances formation. The spin is entirely positive and pretty much non-technical.
The matter for these companies, however, is deadly serious. The issue of reserving based on principles rather than formulas has been around for at least a decade but has taken on rather higher stakes with the rise in sales of universal life insurance policies with secondary guarantees, a product that most if not all of the Alliance companies sell.
Companies that dont sell UL with secondary guarantees are the ones pushing formula reserving because it would drive up the amount of reserves the UL companies have to set aside, with the almost inevitable effect of raising the price of the product and making it less competitive.
Of course, a spokesman for ALIA said, according to Jim Connollys story, that the group is seeking a broad-based reform to address many insurance products and is not concerned specifically with universal life insurance with secondary guarantees.
OK, but for the time being my hunch is that UL with secondary guarantees is where ALIA will be placing a lot of its energy.
This particular battle has a way to go before being resolved in the inner sanctums of the American Academy of Actuaries and the National Association of Insurance Commissioners. Both methods of reserving have their strong proponents.
But I have to hand it to the forces behind the Alliance. Theyve come up with a way of cleverly launching a preemptive strike while seeming to stand above the battle.
Your move, formula reservers.
The powers-that-be behind the new group dont dwell unnecessarily on the arcana of reserving formulas. Rather, they have chosen to stress the benefits of their preferred method of reserving, minus the technical jargon.”
Reproduced from National Underwriter Edition, March 10, 2005. Copyright 2005 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.