Following the announcement from Transamerica on June 8th, 2015 that it will be increasing the monthly costs within several inforce universal life insurance products, on July 14th, Banner and William Penn will implement a cost of insurance (COI) increase for select universal life plans. According to the announcement A confluence of factors has severely eroded the profitability of this block of policies:
- Investment returns have been at all time lows for an extended period of time making it impossible to earn the investment income assumed in pricing.
- Credited Interest rates have been much lower than those reasonably assumed in pricing, at times decades ago, resulting in lower cash values and less interest margin.
- Average mortality on these blocks has been unfavorable, almost always attributable to the conversion segments. Lower cash values and higher amounts at risk only serve to amplify any negative mortality effect.
This cost increase will start with policyholders with contracts that have an anniversary date of August 1, 2015.
The pricing of all products is a function of costs and interest. When it is harder to make money on one block of business, the only options often become increasing costs on other blocks of business to make up losses on these lower performing blocks of business. Payments of claims are referred to as the Cost of Insurance or COI and are the largest single cost factor. With life insurance, COI charges can account for 75% - 85% or more of the total premium. Do you have clients who do not know what they are actually being charged for cost of insurance charges (COIs)? Would you know if the costs of your (client's) policies have been increased?
The National Association of Insurance Commissioner (NAIC) reports that 62% of people who own life insurance do not really know what they have or why they bought it. In order to reassure your clients that they made the appropriate choice in life insurance products and/or reveal when there are opportunities for improvement, it is important to inspect what you expect out of our client’s life insurance portfolios.
INSPECT WHAT YOU EXPECT! Use a Veralytic Research Report to measure policy expenses and know if a particular insurer is increasing or decreasing policy expenses. If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased.
The appropriateness of a policy should be re-evaluated when the insurer announces product changes. In order to fully assess the impact of recent changes on your clients’ permanent life insurance portfolios, or to establish a baseline by which to judge the impact of future shifts in cost, request an inforce illustration with the instructions below:
- Requests for Continuity, Continuity 100, Longevity 100, Penn UL and Life Umbrella 120 illustrations can submitted beginning Wednesday, July 15.
- Reguests for Advantra and OPTerm 20 UL illustrations can be submitted beginning September 1.
- Please request illustrations by using this form for Banner or William Penn.
- Banner Illustration request forms should be sent to email@example.com and William Penn to PennCustomer@lgamerica.com.
 Products include the following: Continuity, Continuity 100, Longevity 100, Penn UL, Life Umbrella 120, Advantra and OPTerm 20 UL.
 Insurance News Net Magazine Oct. 2009 – “Tap into the 62%” Robert Threlkeld