1999 - SOA - The Next Generation Universal Life - Society of Actuaries - 30p

  • 1999 - SOA - The Next Generation Universal Life, Society of Actuaries ---  [BonkNote]   ---  30p
  • Daniel F. Byrne, M Financial Group
    • From a distribution perspective, I think one of the challenges that face us in UL is the servicing of UL.
      • Flexible premium, high-degree-of-service UL products have little or no renewal compensation paid if there’s no premium paid.  
    • The long-term impact of servicing a block of very flexible products without funding to the servicing provider remains to be seen.
    • From a consumer perspective, I think market conduct and performance representation issues are very important...
    • In the majority of them, as long as you have $1 in cash left at age 100, the contract will stay in force for the balance of the life.
    • Will that encourage and motivate buyers and funders to minimally fund UL contracts to $1 at age 100?
      • That comes with a high degree of volatility attached to that approach. 
    • Finally, we must be very careful to learn from the vanishing premium losses and communicate in-force performance regularly.
    • UL, by its nature, tends to have bigger and later surprises.
    • Let’s take a look at a particular case, and we’ll take a look at a funding and performance level of whole life versus UL... 
    • But I think it demonstrates a minimum level of ongoing communication and disclosure is necessary with a flexible premium product. I think it poses a challenge for us in the industry. 
    • The vanishing premium problem came to surface because premiums became due and there was no early warning sign of a premium if it comes due.
    • We kind of lull ourselves into a false sense of confidence here, because UL has a later delivery of bad news, and the surprise is much bigger.
  • Deanne Osgood:  I would be remiss if I didn’t mention equity-indexed universal life insurance (EIUL), because this is a fairly recent innovation that has focused on providing a more attractive accumulation vehicle. Whereas, the secondary guarantee period and the maturity age extension have really focused on the guarantees and some of the difficulties in providing an attractive accumulation vehicle in the fixed interest rate environment that we’re currently in. EIUL does somewhat attack the issue of how we can make this an attractive accumulation vehicle.
  • EIUL products have been available for about two-and-a-half years and have been quite successful for a few companies. However, the volatility of the equity markets combined with the low-interest-rate environment that we’re in has made it difficult to price, market, and sell these products for most companies.
  • There are about eight companies that have introduced 10 products into the marketplace and, typically, the base policy designed for EIUL tends to mirror their traditional fixed counterparts with the exception of the method used to determine the excess interest for the contract. Riders that exist on traditional UL typically are available on EIUL as well. The policy mechanics are virtually identical for a company that offers both types of products. It’s just in how that excess interest is determined that differs.