Ordinary life has been around for 164 years, and it isn’t about to go away. I myself have been working on it for 51 years, and I’m not done yet.
Agreed, there is a lot of confusion in the ordinary life business right now. This confusion involves thing likes the mixed attitudes towards life settlements, how many preferred classes to use, and whether the ordinary product itself is viable on a long term basis. To set the record straight, I surveyed several leading companies in October 2007 to learn what is actually going on and then weighed the findings against LIMRA’s published results on ordinary life for the first 9 months of 2007.
Chart I shows the product offerings for the survey group; Chart II shows the most popular product (measured by face amount); and Chart III shows underwriting classes used. The survey group reflects responses of direct-writing companies with ordinary in-force totaling $2.7 trillion. The carriers were a representative cross section of mutual/stock, career shop/brokerage, and large/small companies, all with diverse offerings.
Some insights from the results follow:
The nearest thing to a surprise is the tremendous strength of level premium term. It leads the offerings (95%) and the most popular (72%) charts. But the 10-year, 20-year, 30-year, and term-to-98 term products all got mentions, too, with the 20-year term predominating.
Importantly, LIMRA results for the first 9 months of 2007 corroborated the term strength, showing a 7% increase.
The next most popular product is universal life with secondary guarantees (22%). This is not surprising, since secondary guarantee features are designed to stop the product from lapsing at high ages–a major weakness of plain vanilla UL policies.
Variable products are high on the offerings list (63%) but are not cutting it in popularity (5%). Maybe the “subprime crisis” and the current near-recessionary climate are slowing things down in the variable market. LIMRA is showing some increases in VL sales in the 3rd quarter, but at this point, it is difficult to tell where these sales will end up at year end.
Traditional whole life showed a 53% representation on the offerings list, but didn’t do especially well on the popularity list (1%). Meanwhile, LIMRA is showing a 3% increase in WL annualized premiums in the first 9 months. Taken together, these figures point to very good news–WL insurance is picking up some steam.
Overall, Chart I shows the tremendous diversity the life insurance industry now has in its ordinary life offerings–all the more so, since the list doesn’t include all the “riders” for these products. At least 100 riders are available to custom-tailor these ordinary life “chassis” plans in Chart I.
The message: The product is well-fixed to serve the public.
Moving on to the underwriting front, practically all companies have gone over to preferred underwriting for nonsmokers.
It was surprising to see that no company surveyed had just one preferred class, in addition to a standard class, for nonsmokers. As indicated in Chart III, companies usually have 2 preferred classes (65%) and 32% have 3. (In my opinion, anything more than 2 preferred classes, in addition to a standard class, gets pretty unwieldy).
For smokers: 41% of the companies have no preferred class, and 45% have one preferred class. (I favor the latter approach–having one preferred smoker–because it makes it possible to pick out the better smoker risks; also, this is a relatively underserved market).
In other findings, 50% of the companies have some form of simplified issue product, usually for worksite business, or for some specialty product. In addition, 26% offer guaranteed issue, usually on an actively-at-work basis. (Corporate-owned life insurance, or COLI, which uses this type of underwriting, seems to be making some kind of a comeback.)
What about 2007 sales? Of the survey respondents, 68% said sales were up, 20% said they were flat and 12% reported ordinary life sales were off. That’s a pretty good sales picture for this rocky year 2007!
John M. Bragg, FSA, ACAS, MAAA, is actuarial consultant at Bragg Associates, Atlanta; past president of Society of Actuaries; and past CEO of Life Insurance Company of Georgia. His e-mail is email@example.com.