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Life Health > Life Insurance

Revisiting the Future, One Year Later

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As 2011 approaches, many trade magazines (National Underwriter among them) will be pursuing the time-honored tradition of forecasting industry trends for the year ahead. It’s a worthwhile exercise, but one often forgotten by editors by the time the next issue goes to press.

That’s too bad, because then readers don’t learn whether the predictions proved accurate. To help close this unfortunate gap in coverage, I revisited 2010 forecasts published in NU. Here’s a sampling.

My Findings

In February, NU reported that healthcare reform is “on life support” because the Congressional leadership didn’t have the votes to push a bill through. Prospects for overhaul of the healthcare system, already dim in the eyes of many observers because of GOP opposition, sank further after the election of Republican Scott Brown to fill the Senate seat in Massachusetts vacated by Democratic Senator Ted Kennedy.

In tune with the negative outlook on healthcare, former Editor-in-Chief Steve Piontek speculated that whatever legislation passed was “likely” to impose as many new regulations on health insurers as contained under initial proposals. And he suggested the companies would not secure the millions of new customers that a comprehensive bill would provide.

But a comprehensive bill we got–and more than many producers bargained for.

Turning to the estate tax, AALU Director of Policy and Public Affairs Sarah Spear speculated in our January 4 edition–as have numerous other observers during the year past–that Congress would likely reinstate the estate tax at 2009 levels, retroactively applying the $3.5 million per person estate tax exemption and the 45% top tax rate for that year to January 1, 2010.

Alas, we’re still waiting with baited breadth for this happen. In our Nov. 8 edition, we learned that a compromise under the new GOP-led Congress appears likely; and that, yes, an extension of the 2009 estate tax regime remains a distinct possibility–for next year.

To be sure, some forecasts have panned out. Many advisors interviewed for our January 4 “Year Ahead” feature predicted continuing rises in policy premiums, particularly for term contracts. Thus, it was no surprise when Donna Kinnaird, president of Swiss Re Life & Health America Inc., and an expert on term life pricing, noted in an October Q&A with NU Editor-in-Chief Bill Coffin that term premiums rose on average 1% in 2010 and were up 6-7% since 2009 Further rises, she said, should be expected.

Given the pummeling that investors’ portfolios took during the economic downturn of 2007-2009, observers also anticipated early this year a continuing migration to products insulated from market gyrations. Chief among them: traditional whole life contracts, which former Senior Editor Linda Koco wrote in our January 4 edition is “suddenly turning heads.”

A November Limra survey validated the predicted upswing. In 2010, whole life sales enjoyed the highest gains of the four major policy types (including UL, VUL and term) rising 15%. At the end of September, whole life sales represented 30% of overall annualized premium sales.

The rise in whole life sales was matched by a comparable increase in long-term care insurance sales–this despite the negative outlook of LTCI agents in January. Most producers in this space anticipated flat (54%) or declining (18%) LTCI sales, according to a Limra survey published in our January 4 issue.

The still weak economy notwithstanding, the dismal forecast was perhaps misplaced given pending tax law changes under the Pension Protection Act. The 2006 legislation aimed in part to boost sales of linked annuity-long-term care products, thanks to a provision that (beginning January 1) lets policyholders pay for LTC coverage with annuity gains on a tax-free basis.

Whether or not the PPA contributed to the LTC market’s upswing this year may be debated. But the pessimists have (so far) proven wrong.

Individual long term care insurance sales were 13% higher in the first half of 2010 than they were during the comparable period in 2009, Senior Editor Trevor Thomas reported on September 13, citing a Limra survey of 20 major LTC carriers. But he noted that this year’s rise reflects the poor performance of individual LTC sales in the recent past: Sales were 30% lower in the first half of 2009 than during the comparable period in 2008. The only annual rise LIMRA has recorded for the product since 2002 has been a 3% increase in 2007.

A Soft Science

As is evident from this sampling of 2010 predictions, insurance forecasting is an inexact science–but one nonetheless valued by producers and carriers who factor such forward-looking estimates into business decisions. And to the extent those decisions are sound ones, that’s all to the good.


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