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Premiums are up and expenses down for 50 top insurers as ranked by premium and annuity considerations. But differences in product mix and distribution channels continue to impact individual companies’ performances.
Premium and annuity considerations for these 50 companies increased by 14.31% in 2004 over 2003, and contract expenses as a percent of premium declined to an average 11.8% from 14.6% in 2003, according to data culled from the NAIC annual database as compiled by National Underwriter Insurance Data Services/Highline Data.
The data also suggests these top 50 companies held the line on lapses as a percent of average in-force, ordinary life business. In 2004, lapses averaged 6.8%, slightly over 2003′s 6.7% rate.
Lapse percentages in 2004 ranged from a low of 0 to a high of 32.7%. Thirty-one companies witnessed a decline in their lapse percent, 13%, an increase; and 6% were flat.
Lapse percentages in 2003 ranged from no change to a high of 25.9%. Twenty-five companies experienced declines; 19, increases; and, 6 remained unchanged.
The percent of lapses in 2003 ranged from 0% to a high of 25.9%.
In 2004, insurance expense as a percent of premium ranged from a low of 3.8% to a high of 29.1% for these top 50 companies. A total of 30 of the top 50 companies saw declines in their expense percent, 18 were up, and 2 were flat.
In 2003, the range of insurance expense as a percent of premium was from a low of 5.3% to a high of 88%. Twenty-four companies witnessed declines and 26 companies, increases in insurance expenses in relation to premium.
One of the biggest contributors to expenses are commissions paid, says Paul Graham, vice president insurance regulation, and chief actuary with the American Council of Life Insurers, Washington. The shift from life insurance products to annuities is lowering the cost structure as a percent of revenue, says Graham.
The difference in commission is significant, he continues. For whole life insurance products, commission can be up to 50% of first-year premium compared with 3%-5% of first-year considerations for annuity products, he adds.
Thus, Graham explains, small changes in a company’s product mix can drive a company’s expenses a great deal. For instance, he says, a shift from whole life products to term or lower premium universal life products can lower a company’s expenses.
Annuity writers need to maintain a lower commission structure because they are competing with banks and mutual fund companies that can provide these products at low cost, Graham says.
Health carriers would have higher expense and lapse ratios, Graham continues. Often, these carriers have to pay multiple claims to the same plan participant instead of just one payout at death or termination of the contract, he says.
Lapse rates for health carriers could also be higher, according to Graham, because medical insurance costs can go up annually which would encourage employers to shop around for a new carrier.