Low interest rates might be good for home buyers and growing companies, but they’re hard on life insurers that have written long-term disability (LTD) insurance, long-term care insurance (LTCI) and other products with long time horizons.
Officials at the Federal Insurance Office (FIO) — an arm of the U.S. Treasury Department created by the Dodd-Frank Wall Street Reform and Consumer Protection Act — have talked about the damage that low rates can do to life insurers in a section on major “currrent issues and emerging trends” at the end of the FIO’s new insurance industry annual report.
The FIO is supposed to prepare the report to help the Treasury secretary and other policymakers understand all aspects of the insurance industry, and especially any issues or regulatory gaps that could “contribute to a systemic crisis in the insurance industry or the U.S. financial system.”
The FIO officials who created the report put the section on the “impact of low interest rates” ahead of “natural catastrophes” and “changing demographics in the United States.”
The drafters of the Dodd-Frank Act specifically excluded the health insurance and LTCI markets from FIO oversight, but the officials who wrote the new report mentioned that U.S. life and health insurers did get about 27 percent of their $645 billion in total 2012 premium revenue by selling disability insurance, LTCI products, and other accident and health products.
FIO officials also pointed out that insurers are selling products through more distribution channels than they used to use. “Workplace selling” operations, for example, now sell health and other voluntary benefits, such as disability insurance, through payroll deduction programs, officials reported.
One trend has been efforts by the Federal Reserve System to help home buyers, home builders and growing companies with good credit ratings by keeping interest rates low.
Insurers have argued that the low rates have been hard on LTD and LTCI operations along with annuity operations and some types of life insurance policies.
The Federal Reserve Board has said little about the possible effects of low rates on insurers.