The U.S. life insurance industry is undergoing a profound change, brought about by complex and unique market conditions and emerging regulatory requirements.
At the moment, life insurance carriers are spending a lot of time challenging the federal government, especially Washington’s efforts to coordinate and make uniform both U.S. and international regulatory standards.
But states are also intensifying their scrutiny of insurers. The hunt by states for the last dollar on unclaimed property is turning insurance home offices into war zones.
And an emerging issue is that state lawmakers are unofficially supporting life settlements as a means of reducing Medicaid expenditures by having elderly policyholders use the insurance to cover the cost of long-term care.
According to the Wall Street Journal, on June 14, Texas Gov. Rick Perry signed a law that allows state Medicaid officials to tell the program’s applicants that they can sell the life insurance policies they have been holding for some time to third parties to cover the cost of any custodial care. The law allows them to remain eligible for Medicaid when the proceeds are exhausted. The Wall Street Journal said that similar legislation is being considered in at least seven other states.
The fact that insurers are changing their product offerings in the annuity markets to reduce their risk profile is not good news for overall industry market share in the intense financial services marketplace.
For example, overall annuity sales dropped 6.7 percent in the first quarter of 2013 compared to a year ago, continuing a trend that has been underway for some time. Annuity sales are a key fee income generator and a product that insurers have worked incessantly to protect from encroachment by banks and mutual funds.
Exchange-traded funds, soaring demand for oil and gas partnerships and a large real estate investment trust market all constitute competition for insurers. In some cases, insurers are even turning away new money for existing products as they seek to reduce potential liability.
This is not good news. Consumers, rather than focusing on asset accumulation, are increasingly becoming interested in products that provide guaranteed income, according to Jay Wintrob, president of AIG Retirement Services, in comments to analysts at AIG’s most recent earnings conference call. The “vast majority” of variable and indexed annuities now include a guaranteed lifetime withdrawal benefit rider option, Wintrob said.