Cycle of Price Increases

I’ve been hearing a lot of rumblings recently about life insurance and annuity carriers implementing price increases or halting sales of certain products.

From articles about many annuity products increasing costs and/or decreasing benefits in order to remain viable to countless product update notifications from life insurance carriers, it’s clear we are in the midst of a significant price and benefit adjustment cycle. While it’s bad news for consumers and the producers who sell these products to them, it seems like a necessary adjustment thanks to the continued low interest rate environment. Standing pat is unrealistic for the carriers, who continue to have trouble making money on the interest side of the equation as rates remain anemic. That leaves their options to increasing costs, decreasing benefits or exiting the market.

Guaranteed universal life products have experienced some of the most significant rate increases in the past couple of years as interest rates have remained low. Let’s look at a popular product with a rate increase later this week as an example. Banner Life Choice and Life Step UL plans will increase premiums “by no more than 9%” for applications received August 16 and later.

In an announcement about the increase to all Legal & General America General Agencies back on July 3, Frank Gencarelli, Legal & General’s senior vice president of sales and marketing, said, “Many experts describe the current interest rate environment as the most challenging they’ve ever faced, and the future interest rate environment as the most uncertain.”

Gencarelli said a silver lining is that commission rates and schedules don’t change, but he pointed to the economic and regulatory environment as the reason for the increase. “Uncertainty around interest rates, AG38, taxes and the ‘fiscal cliff’ are provoking fast-paced changes in pricing,” Gencarelli said in the announcement. “We have not wavered in our goal to be a ‘player’ in universal life. In fact, this is evidence that we want to be in the market for the long term. With changes in the interest rate, regulatory and economic environment, doubtless there are opportunities for product innovation.”

I imagine there has been a run on these products since the announcement that will continue through Thursday to beat the increase. (And by the way, kudos to Banner Life for the fair advance warning about the increase.)