Life settlement industry players want state lawmakers to do something about life insurers’ wave of universal life (UL) cost-of-insurance increases.
State lawmakers are not convinced that this is the right time for them to weigh in.
The National Council of Insurance Legislators (NCOIL) has given a peek at the UL cost-of-insurance increase fight in a meeting summary included in the materials for NCOIL’s summer meeting.
NCOIL held its summer meeting last week, in Salt Lake City. A copy of the meeting summary, from a meeting held in March, is available here.Issuers of UL policies break charges related to mortality protection and administrative expenses out from charges related to investment returns.
Many UL policies are structured in such a way that the issuer has the ability to increase charges related to mortality protection, and for some or all of the administrative expenses, even if some or all of the investment returns are guaranteed.
UL cost-of-insurance increases can discourage consumers from keeping their UL policies.
When life settlement providers buy policies, either from the insureds or from other life settlement entities, they have to pay the premiums to keep the UL policies in force. Big cost-of-insurance increases can eat into their profits.
In some cases, life settlement companies have responded to UL cost-of-insurance increases by suing the life insurers that issued the policies.
The NCOIL Life Insurance and Financial Planning Committee gave life settlement industry representatives and a representative from the American Council of Life Insurers a chance to talk about the issue at NCOIL’s spring meeting, in Atlanta.
What the Life Settlement Reps Said
Darwin Bayston, president of the Life Insurance Settlement Association (LISA), said LISA would like to see NCOIL develop a model act for life insurance cost-of-insurance increases, according to the meeting minutes.
Life insurers have asked for a growing number of cost-of-insurance increases since 2015, and many of those increases have been random and excessive, Bayston said.
Another speaker, Michael Brohawn of ITM TwentyFirst, a life settlement portfolio administrator, described an example of a couple that used survivorship universal life in a trust-owned life insurance arrangement. The issuer imposed a 99% increase in the cost-of-insurance charge in 2016, and that increased the annual carrying costs to $981,707, from $400,000, he said.