Weeding out investor originated life insurance policies may be a difficult task, but it is also necessary for the financial and moral health of the life insurance industry, according to speakers at the American Council of Life Insurers’ annual meeting in Orlando.
Unfortunately for life insurers, while they may wish to separate investor originated policies from the few policies that are sold because they are no longer needed, doing so is a difficult task.
“It’s easy to say we can separate them,” noted Ken Kies, managing director of the Federal Policy Group, a practice of Clark Consulting in Washington, “but as a technical matter it can be very difficult to separate investor initiated policies.”
Some states, even while trying to curb the use of investor originated insurance policies, are also making it difficult. Mr. Kies, as well as other speakers on the panel, noted that a bulletin issued by the Louisiana Department of Insurance in early September, while intending to help reduce investor originated policies, also barred insurers from denying a policy based solely on the insured’s intent to sell the policy or how that policy is financed.
Mr. Kies argued that the stakes for life insurers in the investor originated life insurance debate are extremely high, specifically the favorable tax treatment of death benefits. “This type of transaction is clearly putting at risk the very tax benefit the life insurance industry has been offering for decades,” he said. “If anyone believes the current situation that we enjoy [can continue], then we are kidding ourselves.”
Additionally, he said that insurer pricing, which assumes a certain amount of policy surrenders, could be affected by the increasing use of investor originated policies. “Pricing is an issue,” he said. “It’s clearly an issue out there.”
Stanley Tulin, the vice chairman and chief financial officer at AXA Equitable Life Insurance Company who is retiring this year, said that the issue of investor originated policies also runs afoul of “the very basic purpose of life insurance itself, which is to provide for those left behind.”
Since its beginnings in the United States just before the first Lincoln Administration, life insurance has existed “to deliver death benefits to widows and orphans,” Mr. Tulin said. “I believe that’s an idea we should protect.”