by David Lear, Managing Partner
We made it! We have come to the end of a year that held some of the most product turnover, innovation, and controversy of any in recent memory. If you blinked, you may have missed something. With the ever-changing landscape of new dilemmas demanding new considerations, LifeTrends has been continuously providing solutions. Let us take a minute to examine the (r)evolution we saw this year in our industry.
Explosion of Multiplier Products
The year kicked off with multiplier products taking center stage. A few products started using this design path, but as more joined, releases seemed to get more and more aggressive. At their core, these multiplier products, which use asset charges to bulk up the options budget, suggest that if you are optimistic in the potential for high interest rates, why not put more money into that vehicle to get more return? This higher risk for higher reward approach sparked controversy around transparency, accuracy of illustrations, and positions of over-optimism. LifeTrends developed a method for quantifying this risk to match the product with the audience (see March Points: LifeTrends 70% Window). Meanwhile, the industry discussion ultimately set into motion a revisit of the AG49 regulation.
With the growth of multiplier design in 2019, a divergence in illustrated performance appeared between aggressive and conservative opinions. Many have raised concerns about these divergent illustration options. Discussions continued throughout the year, with some condemning these designs for their high charges, while others praised them for promoting the positive Indexed UL narrative.
As a result, the NAIC task force will reconvene to address the concern. There has been some movement toward a more conservative illustration practice, but it is most certainly not decided yet. Even if a definitive direction is found, implementation will take time. We will continue to monitor the discussion and will report when there is clear direction and timelines.
PBR and 2017 CSO Implemented
Aside from the IUL discussion, our industry has new regulation going into effect January 1, 2020. Throughout 2019, as carriers have brought their product portfolio into compliance with the new PBR method and mortality table, we reviewed the intelligence we have gathered over the year on the transition. Determining a clear trend has been a bit elusive, which shows that the effect of the pricing changes should be small and dependent on the market. We have seen that carriers are taking this time to include additional adjustments to their product releases. In basically every arena, some products can experience substantial changes while others barely change at all in the switch to 2017 CSO/PBR. Below are some of the broad, general trends we have seen as they pertain to the specific markets.
- Protection IUL had many products adding in structural changes, such as increasing interest bonuses, moving multipliers to start in earlier years, or raising caps. Basically, you have products in every category where premiums improve, stay the same, or get worse.
- Accumulation IUL saw initial death benefits significantly increasing, which reduces distributions, and carriers made other adjustments to not lose ground. Products that primarily list a CSO switch see distribution decreases, but most companies are doing some sort of adjustment on interest bonuses, either to stay around the same competitive level, or in some cases to improve illustrated distributions.
- UL-NLG had a general trend of increasing. Some products substantially increased premiums, others stayed relatively static. There were a few outliers that had some decreased premiums, but as a whole, the market has gotten more expensive. The low interest rate environment forcing higher reserving might be the primary cause of this trend as companies are just coupling those adjustments with the regulation.
- Current Assumption UL premiums generally saw increases, though levels vary. Some reprices were slight changes while others saw much more substantial movement. As with the other categories, there was still the occasional outlier that decreased.
- Accumulation VUL changes were generally a decrease in distributions, similar to IUL. A couple of carriers improved their persistency credits and improve distribution levels, but most Accumulation VUL reprices have seen some drops on illustrated income.
What We See Moving Forward
The typical, macro-level pattern for implementing regulations is that carriers first comply, then adjust, and finally innovate once they are comfortable with the new guidelines. AG38 revisions led to some very unique designs around UL guarantee products, with a few companies thinking well outside of the box. Similarly, AG49 has birthed some unique designs on Indexed UL and spawned the current multiplier approach movement. With the introduction of PBR, the new CSO table, and possible changes to AG49, we anticipate small adjustments to many products in the coming year. Once comfortable, we think carriers will begin to once again innovate within the new guidelines.
So, don’t blink! And stay tuned to LifeTrends to help you sell life insurance intelligently.