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Life Health > Life Insurance

A Business Stuck In Neutral Gear

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The group life insurance industry continues to face a number of challenges, according to LIMRA International and an industry consultant.

According to LIMRA’s Group Life Insurance’s Industry Highlights, the group life insurance industry appears to be stuck in neutral gear.

Specifically, says the LIMRA report, the industry has suffered 2 consecutive quarters of declines in new annualized premiums compared to last year.

So far this year, group life carriers have collectively taken in $1.5 billion in new premium, a decline of 5% compared with the first 6 months of last year.

A similarly moderate decline was also recorded in face amount, LIMRA said.

But the industry remains huge, with $26.95 trillion in face amount outstanding as of Dec. 31, 2005, according to data based on reports to state regulators compiled by Highline Data. This represents an increase of 6.14% in face amount outstanding on $25.4 trillion as of the end of 2004.

Another bright spot is that the number of companies adding to premiums in force in 2006 outnumbered the companies posting a decline by a ratio of 2 to 1.

At the same time, the product retains its role as critical for Americans, according to Cecil Bykerk, president of CDBykerk Consulting LLC, in Omaha, Neb.

“A large percentage of U.S. citizens only have group life insurance, not personal insurance,” said Bykerk, a former chief actuary of Mutual of Omaha for 13 years. “It serves as an important backstop for a significant portion of the American people.”

At the same time, this issue is a concern “because, if the group life market begins to unravel and go away, it would leave a number of people without life insurance,” Bykerk said.

“And replacing it would be expensive,” he added. “That’s because life insurance is one of those products people have to be sold; it doesn’t create its own demand because people don’t want to talk about it.”

This issue is a major concern for Americans going forward. “Group life is a critical product for Americans and the economy,” Bykerk said.

In general, fleshing out the findings of the quarterly LIMRA survey, Bykerk explained that group life is a mature business. “There is not a lot of new business out there to pick up,” he said.

“Most employers who are going to offer group life are already doing it,” he said. “So, to get new business you have to take it away from another carrier. It is extremely competitive business, with very few entrants.

“And there is only one way to get in as a new business, and that is to sell it as a loss leader,” Bykerk said. “You have to buy your way back into the market through risky pricing.”

Another concern is that the specter of 9/11 continues to shadow the industry. He said that the reinsurance problem created by 9/11 “has not subsided.”

Reinsurance for the most part is still not available for group life industry, he said. “The group life carriers are faced with a choice of either getting out of the business or accepting full responsibility themselves.”

Some reinsurance is available, but capacity is extremely limited and the cost is very high. Even in the limited quantities it is available, “the price is quite high, relative to what it was prior to 9/11.”

Before 9/11, Bykerk said, companies used to purchase over-arching catastrophic coverage that would cover all claims, inclusive coverage across product lines. “For the most part, that has become mostly unavailable or exorbitantly expensive,” he said.

“Some new reinsurance money has come into the market, but it has not impacted the market, and companies have made the decision to bear all the risk themselves rather than get out of the business completely,” he said.

The Hobson’s choice for group life carriers, he said, is that if you get out of the market, it affects other parts of your business because group life is generally sold in conjunction with other coverages, including disability, long term care, perhaps major medical of various types all packaged together.

“If you don’t provide the coverage, you may not make the brokers’ bid sheet, which affects your overall business,” he said. “The market is extremely competitive. You can’t get out and get back in; if you get out, you lose credibility in the marketplace. It takes years to gain credibility in this mature market, and withdrawal is a death sentence.”

According to the data submitted to state regulators, MetLife is the market leader as of Dec. 31, 2005, with $2.097 trillion in group life insurance in-force, up from $1.857 trillion at year-end 2004.

Next was Prudential, with $1.228 trillion of group life in-force, followed by Aetna Life with $559.6 billion.

Fourth was UNUM Life, with $502 billion in-force, followed by Hartford Life & Accident, with $422.8 billion of group life in-force. In 6th place was Minnesota Life with $405.1 billion of group life in-force, followed by Reliastar Life in 7th place with $360.5 billion of group life in-force.

Rounding out the top 10 in group life in force were 8th-ranked New York Life, at $238.9 billion; 9th-ranked Standard Insurance Company, at $233.5 billion; and 10th-ranked US Branch Sunlife Assurance of Canada, with $174.4 billion.

According to LIMRA, midsized group life insurers continued to collectively outperform their peers in adding policies, a trend that started back in the first quarter of 2006.


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