The lessons of the last financial crisis were painful for many insurers but with some new experience under their belts, tremendous opportunity exists.
The message was delivered both by executives of Ernst & Young , New York, who discussed a research paper based on interviews with CEOs and panelists speaking during the annual life insurance executive conference sponsored by E&Y, The National Underwriter Co., and its parent, Summit Business Media, Erlanger, Ky., last week in New York.
The research paper is based on interviews with CEOs done in August and September and focused on accelerating growth while managing risk. Going forward, according to these CEOs, risk management will act as a filter for developing new products, attracting new business and strategically directing the enterprise. This is important, because according to the report which quoted one CEO, “Insurance leaders who think that turbulence is largely past may be in for a surprise.” The report suggests that any management team that is not re-thinking the business model has a problem.
The report suggests that some are re-evaluating their core competencies and taking on risk more judiciously. This shift includes reworking product offerings so that carriers and policyholders better share risk.
This reevaluation, the report continues, will also include serving the baby boomer population while also appealing to the Generation Y group. In order to serve the Y Generation, significant investments in technology may be needed as well as better use of social media outlets, the E&Y research suggested.
This past summer, many companies were undertaking a “rethink” looking at issues such as what is held on the balance sheet and what are the limits of that balance sheet, according to Doug French, E&Y principal-financial services. For instance, a decision may be made to reduce the amount of variable annuities that are written, he explained.
International accounting standards that are being developed will accelerate the examination described in the report, according to Henry Essert, E&Y’s executive director-financial services. French added that the new standards will create greater transparency.
Companies will also need to think of new ways to grow, he adds. French says that selling face-to-face in the middle market is too expensive and younger people don’t really want it. So, he continued, new ways of reaching consumers such as selling through social media must be developed.
Essert says that products offered will extend beyond term insurance. One needs to look at the definition of simplicity and realize that a lot of products are not as complicated as they seem and can be sold through social media outlets. It is a matter of explaining these products so that the consumer can understand them, he says.
During panel discussions experts offered some ideas to consider when they examine risk. Helen Galt, senior vice president, chief risk officer and company actuary with Prudential Financial, Newark, N.J., says that the recent financial crisis was to a large extent precipitated by fraud, so going forward that is one of the issues insurers will have to look at when assessing future risks.
Ellen Lamale, senior vice president and chief risk officer, Principal Financial Group, Des Moines, Iowa, expressed concern over cyber crime and said that she works with an internal company panel with the charge of looking at risks that are really “out of the box” and go beyond normal risks that insurers usually consider.
Mark Puccia, managing director with Standard & Poor’s Corp., New York, said that in general, companies have “adequate” risk management programs in place. He cautioned, however, that as the economy improves, companies will need to be careful not to reach too far for yield, particularly if an extended low interest rate environment materializes. Risk management programs do make a difference, he explained to attendees. Those companies that had programs in place and were performing well, did “less worse” than companies that did not have strong programs in place, he noted.
Wednesday, November 24, 2010
Monday, November 22, 2010
NCOIL Meeting Roundup
State insurance legislators adopted several model laws that will establish guidelines for retained asset accounts, life insurance disclosures, after-market crash parts and surplus lines surplus compact.
The actions were taken during the 2010 annual meeting of the National Conference of Insurance Legislators, Troy, N.Y. The meeting was held in Austin, Texas.
The following models were adopted:
Retained Asset Accounts (RAAs)
A Beneficiaries’ Bill of Rights Model Act creates guidelines for the RAAs including disclosures about when payment options other than a lump-sum are offered and the right of beneficiaries to access the entire proceeds by cashing a single check.
RAA marketing materials, disclosures and forms would have to be filed with insurance regulators prior to their use and report annually on the number and amount of their RAAs, on how long the accounts have existed, and details regarding RAAs transferred to state unclaimed property funds, among other things. It would also require insurers to return RAA balances to a beneficiaries if—during any continuous three-year period—they did not give affirmative directive to maintain the account.
The written disclosures would have to state that beneficiaries can access the entire proceeds by cashing a single check. Required disclosures would also include any interest rates, fees, limitations and delays tied to the account, and whether or not the benefits have available Federal Deposit Insurance Corporation (FDIC) coverage, among other items.
The bill was co-sponsored by state Rep. Robert Damron, (Ky.), outgoing NCOIL president.
Life Insurance Disclosure
A Life Insurance Consumer Disclosure Model Act was adopted which requires insurers to notify people who are over age 60 or terminally/chronically ill in easily understandable language of alternatives to giving up their policy. As well as listing the options, the model would advise policy owners to contact their financial advisor, insurance agent, broker, or attorney to obtain advice or assistance. It also explains that these alternatives may or may not be available to particular consumers depending on a number of circumstances, including age and health status and policy terms.
The model follows a series of similar measures recently enacted in Kentucky, Maine, Oregon, and Washington. The NCOIL model requires insurance departments to develop the notice at no cost to insurers or other licensees. The model was sponsored by Rep. Ron Crimm (Ky.) and based upon a 2010 Kentucky law.
Market Conduct Analysis
A Market Conduct Annual Statement Model Act will provide statutory authority for regulators to annually collect MCAS data and establish rules to govern collection and sharing of the information.
It would allow commissioners to confidentially share MCAS data with other entities—including with the National Association of Insurance Commissioners, Kansas City, Mo., and other state and federal regulators—and would base insurer participation on a $50,000 direct written premium threshold currently required by the NAIC. The model was sponsored by state Sen. James Seward (NY), NCOIL past president.
After Market Crash Parts
A decision was made to defer a vote on the After Market Crash Parts Model until the spring meeting in Washington on March 4-6, 2011. The proposed model law would require disclosure and consent before a crash part is repaired or replaced; set ground rules for insurers to specify aftermarket crash parts; require lasting, visible labels on crash parts; and promote accountability.
The decision to defer followed a 13 to 11 vote in which NCOIL’s Property-Casualty insurance committee overturned an amendment on one of the thorniest aspects of the issue: the degree to which certification means that parts are good-quality and safe. The proposal required insurers to confirm that an aftermarket crash part warranty at least equals that for an original equipment manufacturer (OEM) version. It also—in reintroducing language that has recurred throughout consideration of the model—deemed certified aftermarket parts to be equivalent to OEMs.
State Sen. Ruth Teichman (Ks.) explained, “Legislators felt that defeat of the equivalency amendment, in addition to a vote that had freed insurers from paying for needed modifications to non-OEM parts, would create a loophole in which consumers would be unprotected from poor quality materials. Vehicle owners cannot be left stranded.”
On November 22, the Property-Casualty Insurers Association of America, Des Plaines, Ill., reiterated its opposition to the model and the amendment citing “problems with a costly but virtually useless policy notice requirement and compliance issues with the warranty equivalence language. However, PCI expressed support for tabling of a model act regarding insurer auto-body steering.
Slimpact II
The slimmed-down Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT), dubbed SLIMPACT-Lite, was adopted. It would authorize a governing commission to establish allocation formulas, uniform payment methods and reporting requirements, foreign insurer eligibility requirements, and a single policyholder notice, among other things. To streamline taxation, it would require a state to create a single tax rate for surplus lines insurance, allow states to charge their own rates on multi-state risks, and set uniform payment dates.
The actions were taken during the 2010 annual meeting of the National Conference of Insurance Legislators, Troy, N.Y. The meeting was held in Austin, Texas.
The following models were adopted:
Retained Asset Accounts (RAAs)
A Beneficiaries’ Bill of Rights Model Act creates guidelines for the RAAs including disclosures about when payment options other than a lump-sum are offered and the right of beneficiaries to access the entire proceeds by cashing a single check.
RAA marketing materials, disclosures and forms would have to be filed with insurance regulators prior to their use and report annually on the number and amount of their RAAs, on how long the accounts have existed, and details regarding RAAs transferred to state unclaimed property funds, among other things. It would also require insurers to return RAA balances to a beneficiaries if—during any continuous three-year period—they did not give affirmative directive to maintain the account.
The written disclosures would have to state that beneficiaries can access the entire proceeds by cashing a single check. Required disclosures would also include any interest rates, fees, limitations and delays tied to the account, and whether or not the benefits have available Federal Deposit Insurance Corporation (FDIC) coverage, among other items.
The bill was co-sponsored by state Rep. Robert Damron, (Ky.), outgoing NCOIL president.
Life Insurance Disclosure
A Life Insurance Consumer Disclosure Model Act was adopted which requires insurers to notify people who are over age 60 or terminally/chronically ill in easily understandable language of alternatives to giving up their policy. As well as listing the options, the model would advise policy owners to contact their financial advisor, insurance agent, broker, or attorney to obtain advice or assistance. It also explains that these alternatives may or may not be available to particular consumers depending on a number of circumstances, including age and health status and policy terms.
The model follows a series of similar measures recently enacted in Kentucky, Maine, Oregon, and Washington. The NCOIL model requires insurance departments to develop the notice at no cost to insurers or other licensees. The model was sponsored by Rep. Ron Crimm (Ky.) and based upon a 2010 Kentucky law.
Market Conduct Analysis
A Market Conduct Annual Statement Model Act will provide statutory authority for regulators to annually collect MCAS data and establish rules to govern collection and sharing of the information.
It would allow commissioners to confidentially share MCAS data with other entities—including with the National Association of Insurance Commissioners, Kansas City, Mo., and other state and federal regulators—and would base insurer participation on a $50,000 direct written premium threshold currently required by the NAIC. The model was sponsored by state Sen. James Seward (NY), NCOIL past president.
After Market Crash Parts
A decision was made to defer a vote on the After Market Crash Parts Model until the spring meeting in Washington on March 4-6, 2011. The proposed model law would require disclosure and consent before a crash part is repaired or replaced; set ground rules for insurers to specify aftermarket crash parts; require lasting, visible labels on crash parts; and promote accountability.
The decision to defer followed a 13 to 11 vote in which NCOIL’s Property-Casualty insurance committee overturned an amendment on one of the thorniest aspects of the issue: the degree to which certification means that parts are good-quality and safe. The proposal required insurers to confirm that an aftermarket crash part warranty at least equals that for an original equipment manufacturer (OEM) version. It also—in reintroducing language that has recurred throughout consideration of the model—deemed certified aftermarket parts to be equivalent to OEMs.
State Sen. Ruth Teichman (Ks.) explained, “Legislators felt that defeat of the equivalency amendment, in addition to a vote that had freed insurers from paying for needed modifications to non-OEM parts, would create a loophole in which consumers would be unprotected from poor quality materials. Vehicle owners cannot be left stranded.”
On November 22, the Property-Casualty Insurers Association of America, Des Plaines, Ill., reiterated its opposition to the model and the amendment citing “problems with a costly but virtually useless policy notice requirement and compliance issues with the warranty equivalence language. However, PCI expressed support for tabling of a model act regarding insurer auto-body steering.
Slimpact II
The slimmed-down Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT), dubbed SLIMPACT-Lite, was adopted. It would authorize a governing commission to establish allocation formulas, uniform payment methods and reporting requirements, foreign insurer eligibility requirements, and a single policyholder notice, among other things. To streamline taxation, it would require a state to create a single tax rate for surplus lines insurance, allow states to charge their own rates on multi-state risks, and set uniform payment dates.
Saturday, November 20, 2010
NAIC Releases New Version of Retained Asset Account Draft Bulletin
State insurance commissioners released the latest draft of a bulletin designed to provide ‘guardrails’ for retained asset accounts.
Retained asset accounts (RAAs) are accounts that are offered to beneficiaries upon the death of an insured. Often, they are one option a beneficiary has to draw upon the proceeds of an insurance policy. These accounts can be used as a default if no option is selected and in the case of insurance paid for by an employer, the employer may make the decision to use an RAA as the means to distribute death benefit proceeds.
Over the summer the issue drew a great deal of attention following an article by Bloomberg Markets. The concern focused on interest paid, whether beneficiaries understood the option, and whether the money is protected. Insurers said that the option has been helping bereaved beneficiaries for over 20 years and that state guaranty funds protect the death benefit. At least one consumer advocate says beneficiaries are better off taking the money immediately.
State regulators at the National Association of Insurance Commissioners, Kansas City, Mo., decided that the best approach is to develop a model bulletin. State insurance legislators led by the National Conference of Insurance Legislators, Troy, N.Y., which are meeting this weekend Austin, Texas, are developing a model law.
The NAIC’s draft states that the purpose of the bulletin is to “establish acceptable disclosure standards regarding the payment of life insurance benefits by means of a ‘retained asset account’.” It removes language stating that there is the potential for misunderstanding.
The proposed bulletin would require that a written explanation of settlement options be provided to beneficiaries and when appropriate, interest rates applicable to those options would be disclosed.
Among the disclosures required by the draft are:
--One draft or check may be written for the entire death benefit amount due the beneficiary;
-- Other settlement options are preserved until the entire balance is withdrawn or the balance drops below the insurer’s minimum balance requirements;
--Any fees charged must be described;
--The interest rate credited to the account;
--The interest earned on the account will be taxable; and,
--Retained Asset Account funds are guaranteed by either the Federal Deposit Insurance Corporation (FDIC) or State Guaranty Fund Associations.
Retained asset accounts (RAAs) are accounts that are offered to beneficiaries upon the death of an insured. Often, they are one option a beneficiary has to draw upon the proceeds of an insurance policy. These accounts can be used as a default if no option is selected and in the case of insurance paid for by an employer, the employer may make the decision to use an RAA as the means to distribute death benefit proceeds.
Over the summer the issue drew a great deal of attention following an article by Bloomberg Markets. The concern focused on interest paid, whether beneficiaries understood the option, and whether the money is protected. Insurers said that the option has been helping bereaved beneficiaries for over 20 years and that state guaranty funds protect the death benefit. At least one consumer advocate says beneficiaries are better off taking the money immediately.
State regulators at the National Association of Insurance Commissioners, Kansas City, Mo., decided that the best approach is to develop a model bulletin. State insurance legislators led by the National Conference of Insurance Legislators, Troy, N.Y., which are meeting this weekend Austin, Texas, are developing a model law.
The NAIC’s draft states that the purpose of the bulletin is to “establish acceptable disclosure standards regarding the payment of life insurance benefits by means of a ‘retained asset account’.” It removes language stating that there is the potential for misunderstanding.
The proposed bulletin would require that a written explanation of settlement options be provided to beneficiaries and when appropriate, interest rates applicable to those options would be disclosed.
Among the disclosures required by the draft are:
--One draft or check may be written for the entire death benefit amount due the beneficiary;
-- Other settlement options are preserved until the entire balance is withdrawn or the balance drops below the insurer’s minimum balance requirements;
--Any fees charged must be described;
--The interest rate credited to the account;
--The interest earned on the account will be taxable; and,
--Retained Asset Account funds are guaranteed by either the Federal Deposit Insurance Corporation (FDIC) or State Guaranty Fund Associations.
Wednesday, November 17, 2010
Life Settlement Execs React to Kramer Decision
New York
A panel of life settlement experts offered their reaction to an important New York Court of Appeals decision in the Kramer case.
The Court came down with an opinion on November 17 in the case of Alice Kramer vs. Phoenix Life Insurance Co., Lincoln Life & Annuity Co. of New York. It specifically addressed the question of whether New York insurance law (3205(b) 1 and 2) prohibits an insured from procuring a policy on his own life and immediately transferring the policy to a person without an insurable interest in the insured’s life, if the insured did not ever intend to provide insurance protection in the insured’s life. The transactions are called beneficial interest contracts.
The Court responded that there was no such prohibition, even in the case where the policy was obtained for just such a purpose.
The question was raised during the annual Life Insurance Executive Conference sponsored by Ernst & Young, the National Underwriter Company and Summit Business Media.
During the discussion, the panel was asked about the impact of Kramer. Jule Rousseau, a partner with Arent Fox LLP, New York, said that now New York has a decision specific to its state that to which it can refer rather than referring to case decisions in other states such as Arizona. He said that other major states will probably refer to the Kramer decision if similar cases are addressed.
David Goldman, director of the longevity markets group at Credit Suisse, New York, said that “it is clear that the ruling had an impact, but what is not yet clear is just how big an impact it will be.” He said that $10 billion to $12 billion in the life insurance market which are beneficial interest transactions are not legitimate transactions. However, he noted that up to $4 billion of that total could be disqualified because of potential fraud issues. He added that Credit Suisse does not participate in beneficial interest transactions.
Alan Buerger, co-founder and CEO of Coventry, Fort Washington, Pa., agreed that there could be a huge impact. He also noted that his firm does not participate in the beneficial interest market.
The case arose when Arthur Kramer, a prominent New York attorney and brother of Larry Kramer, a renowned playwright, purchased several policies with the intent to assign the beneficial interests to investors who did not have an insurable interest in his life. Upon his death, his widow, Alice Kramer, representing her husband’s estate, filed a complaint in U.S. District Court for the Southern District of New York seeking to have the $56,200,000 in death benefits paid to her, alleging that New York’s insurable interest law was violated.
In the court opinion, it states that 3205 “clearly provides that, so long as the insured is ‘of lawful age’ and acts ‘on his own initiative,’ he can ‘procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation.” The decision continues that “It is equally plain that a contract ‘so procured or effectuated’ may be ‘immediate[ly] transfer[ed] or assigned[ed]. The provision does not require the assignee to have an insurable interest and, given the insured’s power to name any beneficiary, such restriction on assignment would serve no purpose.”
A panel of life settlement experts offered their reaction to an important New York Court of Appeals decision in the Kramer case.
The Court came down with an opinion on November 17 in the case of Alice Kramer vs. Phoenix Life Insurance Co., Lincoln Life & Annuity Co. of New York. It specifically addressed the question of whether New York insurance law (3205(b) 1 and 2) prohibits an insured from procuring a policy on his own life and immediately transferring the policy to a person without an insurable interest in the insured’s life, if the insured did not ever intend to provide insurance protection in the insured’s life. The transactions are called beneficial interest contracts.
The Court responded that there was no such prohibition, even in the case where the policy was obtained for just such a purpose.
The question was raised during the annual Life Insurance Executive Conference sponsored by Ernst & Young, the National Underwriter Company and Summit Business Media.
During the discussion, the panel was asked about the impact of Kramer. Jule Rousseau, a partner with Arent Fox LLP, New York, said that now New York has a decision specific to its state that to which it can refer rather than referring to case decisions in other states such as Arizona. He said that other major states will probably refer to the Kramer decision if similar cases are addressed.
David Goldman, director of the longevity markets group at Credit Suisse, New York, said that “it is clear that the ruling had an impact, but what is not yet clear is just how big an impact it will be.” He said that $10 billion to $12 billion in the life insurance market which are beneficial interest transactions are not legitimate transactions. However, he noted that up to $4 billion of that total could be disqualified because of potential fraud issues. He added that Credit Suisse does not participate in beneficial interest transactions.
Alan Buerger, co-founder and CEO of Coventry, Fort Washington, Pa., agreed that there could be a huge impact. He also noted that his firm does not participate in the beneficial interest market.
The case arose when Arthur Kramer, a prominent New York attorney and brother of Larry Kramer, a renowned playwright, purchased several policies with the intent to assign the beneficial interests to investors who did not have an insurable interest in his life. Upon his death, his widow, Alice Kramer, representing her husband’s estate, filed a complaint in U.S. District Court for the Southern District of New York seeking to have the $56,200,000 in death benefits paid to her, alleging that New York’s insurable interest law was violated.
In the court opinion, it states that 3205 “clearly provides that, so long as the insured is ‘of lawful age’ and acts ‘on his own initiative,’ he can ‘procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation.” The decision continues that “It is equally plain that a contract ‘so procured or effectuated’ may be ‘immediate[ly] transfer[ed] or assigned[ed]. The provision does not require the assignee to have an insurable interest and, given the insured’s power to name any beneficiary, such restriction on assignment would serve no purpose.”
What Vexes Insurers: S&P Explains
Interest rates are like a tightrope with risks from both increases and decreases for insurers that are not sure footed, according to a new report issued by Standard & Poor’s Corp., New York.
Fortunately, according to the S&P report, “Interest Rate Risk: Why Both Decreases And Increases In Rates Can Vex Insurers,” most insurers have developed enterprise risk management programs to reduce this risk.
The long-term nature of several insurance products and their supporting assets make the insurance sector one of the most interest-rate-sensitive sectors that Standard & Poor's rates,” the rating agency says.
The products at greatest risk for disintermediation are fixed annuities and universal life, according to the report. But companies that sell these products have, for the most part, strong ERM programs, according to the report. However, according to the report, “the risk is still relatively modest in our view, in part because of companies' ability to offset the loss of interest with increased nonguaranteed elements, such as the cost of insurance charges on some products.”
“In a prolonged low interest rate environment, earnings spread compression is the most significant risk. Specifically, investment of premiums and deposits and reinvestment of interest income and returns of principal on maturing fixed-income securities into lower-yielding investments will pressure net investment income over time,” S&P cautions.
The report says that long-term care insurance and individual disability insurance face risks if there is a prolonged low interest rate scenario since these products have long-duration liabilities and a shortage of matching assets which creates significant reinvestment risk for issuers. And, the report explains, for life insurance and annuity product lines, investment income constitutes a significant portion of earnings.
Health insurance, according to S&P, is the least interest sensitive of insurance lines because of the short-term nature of the segment’s liabilities. And property/casualty insurers are not as impacted by interest rate risk, according to the report. “Property/casualty insurance products do not credit interest to the policyholder. In addition, their products do not have significant liquidity-sensitive features, and claimants usually cannot accelerate cash outflows.”
Fortunately, according to the S&P report, “Interest Rate Risk: Why Both Decreases And Increases In Rates Can Vex Insurers,” most insurers have developed enterprise risk management programs to reduce this risk.
The long-term nature of several insurance products and their supporting assets make the insurance sector one of the most interest-rate-sensitive sectors that Standard & Poor's rates,” the rating agency says.
The products at greatest risk for disintermediation are fixed annuities and universal life, according to the report. But companies that sell these products have, for the most part, strong ERM programs, according to the report. However, according to the report, “the risk is still relatively modest in our view, in part because of companies' ability to offset the loss of interest with increased nonguaranteed elements, such as the cost of insurance charges on some products.”
“In a prolonged low interest rate environment, earnings spread compression is the most significant risk. Specifically, investment of premiums and deposits and reinvestment of interest income and returns of principal on maturing fixed-income securities into lower-yielding investments will pressure net investment income over time,” S&P cautions.
The report says that long-term care insurance and individual disability insurance face risks if there is a prolonged low interest rate scenario since these products have long-duration liabilities and a shortage of matching assets which creates significant reinvestment risk for issuers. And, the report explains, for life insurance and annuity product lines, investment income constitutes a significant portion of earnings.
Health insurance, according to S&P, is the least interest sensitive of insurance lines because of the short-term nature of the segment’s liabilities. And property/casualty insurers are not as impacted by interest rate risk, according to the report. “Property/casualty insurance products do not credit interest to the policyholder. In addition, their products do not have significant liquidity-sensitive features, and claimants usually cannot accelerate cash outflows.”
Monday, November 15, 2010
NAIC Exchange Model Advances
A model that creates a framework for the purchase and sale of qualified health plans in the individual market through health exchanges is moving toward full adoption by state insurance regulators.
A draft of the American Health Benefit Exchange Act was adopted by a subgroup of the Health Insurance and Managed Care “B” Committee chaired by Michael McRaith, Illinois insurance director.
The model provides for the establishment of a “Small Business Health Options Program (SHOP Exchange) to assist qualified small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market.” The model seeks to provide a transparent marketplace, consumer education and to assist individuals with access to programs, tax credits and subsidies.
The model was advanced on the condition that a drafting note in Section 10 would receive additional consideration. It now goes to the “B” Committee on Nov. 22 before proceeding to the full executive committee and plenary of the National Association of Insurance Commissioners, Kansas City, Mo. Comments are being received through Nov. 19.
The drafting note that was the focus of much of the discussion during the subcommittee review considered how states should treat benefits that exceed federal requirements for qualified health plans. States were also warned of the potential for adverse selection, when the sick stay with a plan and the healthy opt out, if there are inconsistent benefits inside and outside of an exchange. One drafting note option suggests that states should consider a “’mandated offer’ provision under which carriers must also offer the option to purchase coverage providing all benefits that would otherwise be required by State law.”
McRaith commented that the drafting note should not be too prescriptive. Later in the discussion, a representative for Autism Speaks, New York, cautioned states that the language was “far too prescriptive” and raised the concern that it would have a negative impact on Americans with significant disabilities because of the potential to loosen mandates.
Joan Gardiner of Blue Cross/Blue Shield, Chicago, said that BC/BS was supportive of exchanges and was concerned that language that was too prescriptive might impede them getting up and running.
A draft of the American Health Benefit Exchange Act was adopted by a subgroup of the Health Insurance and Managed Care “B” Committee chaired by Michael McRaith, Illinois insurance director.
The model provides for the establishment of a “Small Business Health Options Program (SHOP Exchange) to assist qualified small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market.” The model seeks to provide a transparent marketplace, consumer education and to assist individuals with access to programs, tax credits and subsidies.
The model was advanced on the condition that a drafting note in Section 10 would receive additional consideration. It now goes to the “B” Committee on Nov. 22 before proceeding to the full executive committee and plenary of the National Association of Insurance Commissioners, Kansas City, Mo. Comments are being received through Nov. 19.
The drafting note that was the focus of much of the discussion during the subcommittee review considered how states should treat benefits that exceed federal requirements for qualified health plans. States were also warned of the potential for adverse selection, when the sick stay with a plan and the healthy opt out, if there are inconsistent benefits inside and outside of an exchange. One drafting note option suggests that states should consider a “’mandated offer’ provision under which carriers must also offer the option to purchase coverage providing all benefits that would otherwise be required by State law.”
McRaith commented that the drafting note should not be too prescriptive. Later in the discussion, a representative for Autism Speaks, New York, cautioned states that the language was “far too prescriptive” and raised the concern that it would have a negative impact on Americans with significant disabilities because of the potential to loosen mandates.
Joan Gardiner of Blue Cross/Blue Shield, Chicago, said that BC/BS was supportive of exchanges and was concerned that language that was too prescriptive might impede them getting up and running.
Thursday, November 11, 2010
MetLife Bows Out of Long-term Care Business
There was big news today in the long-term care insurance (LTCI) market with MetLife’s announcement that it will bow out of the business.
What is more interesting is the juxtaposition with data that suggests that there is a greater need than ever (see yesterday’s posting.) The Genworth Financial survey comes in the midst of Long-term Care Awareness Month which seeks to highlight the value of the product.
MetLife cited “the financial challenges facing the LTCI industry…” At the time of this posting, a MetLife spokesperson had not responded to a request to explain if those challenges are referring to today’s economic climate or the difficulty of getting the public interested in LTCI.
It is unclear what is causing the product’s lack of traction with consumers. Is it simply cost? The product is not cheap and gets increasingly expensive as potential buyers age and near the time when they may need it. But, then again as the Genworth Financial study in yesterday’s posting pointed out, the cost of care for loved ones is even more cause for concern.
Is it simply that people don’t want to think about tomorrow especially if those thoughts are unpleasant? Well quite possibly except that the survey found that people are worried about being a burden on family members. So, in a concrete way, they are thinking about tomorrow. It also found that there is a gap between concern and the action needed to stop that concern. Or maybe it is concern that if the contract is not used, the contract owner will not get any money back.
What is clear is that the number of carriers in this segment of the market is shrinking. Whether it is a normal market consolidation or concern that the product is just not taking off or is too unpredictable is unclear. Those who buy it are keeping it, belying an assumption that people would lapse their contracts over time. The future cost of care is another unpredictable factor.
If there is concern among survey respondents about the future, there is also concern among insurers about how proposed international accounting could impact products with long-term obligations. The proposed standards, while not yet in place, could directly impact products like long-term care insurance creating volatility in financial statements and increased capital requirements. It could encourage insurers to leave the business, discourage companies from entering the business and create another hurdle for those wanting to do business in Europe. The potential issue for companies has been addressed in a number of venues: in an Ernst & Young webinar; in an interview with Laura Bazer and Wallace Enman, analysts with Moody’s Investors Service, New York; and during discussions at the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y.
MetLife had not responded to a question about whether this potential accounting change was part of its decision to exit the long-term care market.
MetLife says that its current policyholders need not be concerned about existing contracts. The New York-based insurer says it will continue to accept new applications for individual LTCI policies received on or before December 30, 2010. In addition, in 2011, MetLife will be discontinuing new enrollments into existing group and multi-life LTCI plans. The timing will vary based on existing contractual obligations.
The company also offered the following assurance: “MetLife’s decision to stop writing new LTCI business will have no impact on existing insureds’ coverage. As long as premiums are paid on time, coverage cannot be cancelled. All current insureds can continue to make coverage changes per the terms of their policy or certificate, including inflation protection offers and requests to increase or decrease coverage.”
And, MetLife says that while it is exiting the LTCI market, it is not giving up on differ ways to meet a growing need to take care of older Americans. “MetLife is committed to exploring potential solutions, including combining LTCI with other products, which the company believes can effectively address the long-term care financing needs of the public as well as its business goals.”
Recent changes in federal law allow companies to combine annuity and long-term care features in products, a combination that would fit in with MetLife’s sizeable annuity business.
What is more interesting is the juxtaposition with data that suggests that there is a greater need than ever (see yesterday’s posting.) The Genworth Financial survey comes in the midst of Long-term Care Awareness Month which seeks to highlight the value of the product.
MetLife cited “the financial challenges facing the LTCI industry…” At the time of this posting, a MetLife spokesperson had not responded to a request to explain if those challenges are referring to today’s economic climate or the difficulty of getting the public interested in LTCI.
It is unclear what is causing the product’s lack of traction with consumers. Is it simply cost? The product is not cheap and gets increasingly expensive as potential buyers age and near the time when they may need it. But, then again as the Genworth Financial study in yesterday’s posting pointed out, the cost of care for loved ones is even more cause for concern.
Is it simply that people don’t want to think about tomorrow especially if those thoughts are unpleasant? Well quite possibly except that the survey found that people are worried about being a burden on family members. So, in a concrete way, they are thinking about tomorrow. It also found that there is a gap between concern and the action needed to stop that concern. Or maybe it is concern that if the contract is not used, the contract owner will not get any money back.
What is clear is that the number of carriers in this segment of the market is shrinking. Whether it is a normal market consolidation or concern that the product is just not taking off or is too unpredictable is unclear. Those who buy it are keeping it, belying an assumption that people would lapse their contracts over time. The future cost of care is another unpredictable factor.
If there is concern among survey respondents about the future, there is also concern among insurers about how proposed international accounting could impact products with long-term obligations. The proposed standards, while not yet in place, could directly impact products like long-term care insurance creating volatility in financial statements and increased capital requirements. It could encourage insurers to leave the business, discourage companies from entering the business and create another hurdle for those wanting to do business in Europe. The potential issue for companies has been addressed in a number of venues: in an Ernst & Young webinar; in an interview with Laura Bazer and Wallace Enman, analysts with Moody’s Investors Service, New York; and during discussions at the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y.
MetLife had not responded to a question about whether this potential accounting change was part of its decision to exit the long-term care market.
MetLife says that its current policyholders need not be concerned about existing contracts. The New York-based insurer says it will continue to accept new applications for individual LTCI policies received on or before December 30, 2010. In addition, in 2011, MetLife will be discontinuing new enrollments into existing group and multi-life LTCI plans. The timing will vary based on existing contractual obligations.
The company also offered the following assurance: “MetLife’s decision to stop writing new LTCI business will have no impact on existing insureds’ coverage. As long as premiums are paid on time, coverage cannot be cancelled. All current insureds can continue to make coverage changes per the terms of their policy or certificate, including inflation protection offers and requests to increase or decrease coverage.”
And, MetLife says that while it is exiting the LTCI market, it is not giving up on differ ways to meet a growing need to take care of older Americans. “MetLife is committed to exploring potential solutions, including combining LTCI with other products, which the company believes can effectively address the long-term care financing needs of the public as well as its business goals.”
Recent changes in federal law allow companies to combine annuity and long-term care features in products, a combination that would fit in with MetLife’s sizeable annuity business.
Wednesday, November 10, 2010
Genworth LTC Study Measures Consumer Concerns about Care
With long-term care awareness month in full throttle, Genworth Financial, Richmond, Va., is getting a read on what most concerns consumers when they think of their possible long-term care needs.
The study, “Our Family, Our Future: The Heart of Long Term Care Planning,” conducted an online survey of 2,151 U.S. adults 18 and over.
Overwhelmingly, respondents said that their greatest fear about a long-term illness was being a burden on family members. A total of 53 percent offered this response, over double the number of the 26 percent of participants who expressed fear of ending up in a nursing home. Ten percent answered that depleting savings was their greatest concern and 11 percent responded that they feared death.
When examined further, the top fear of being a financial burden is driven by concern over uninsured medical expenses. This was the top financial worry among men and women age 55+. The top fear over disabling diseases was Alzheimer’s.
If the fear is present, action is not, according to the study’s findings. “While two-thirds of people will actually need some long term care, such as home care, assisted living, or nursing home care, after they reach age 65, only 35% of people believe they will need such care,” according to the study.
And, according to the Genworth study, families are not talking in depth about long-term care needs as evidenced by the fact that 91 percent of all Americans have not discussed all three key long term care topics with their spouses; 92% have not discussed all three key long term care topics with their adult children; and 94% have not discussed all three key long term care topics with their parents. Those topics are: what long-term care options are most preferred; the potential roles and responsibilities of different family members for managed care; and, how long-term care will be paid for if required.
Other questions reaffirm the disconnect between known need and action. Genworth found that 78 percent of men and women would find it helpful to talk to a financial professional about long-term care planning while only 16 percent have had this conversation with a financial professional.
So, why is there such a lack of action? The study suggests that discomfort may be the biggest barrier. It found that “Fifty-nine percent (59%) are uncomfortable raising the topic while 49% believe their families would be uncomfortable talking about it. People also cite not knowing how to start the conversation (46%) and believing they will never need long term care as other major reasons (43%).”
The study, “Our Family, Our Future: The Heart of Long Term Care Planning,” conducted an online survey of 2,151 U.S. adults 18 and over.
Overwhelmingly, respondents said that their greatest fear about a long-term illness was being a burden on family members. A total of 53 percent offered this response, over double the number of the 26 percent of participants who expressed fear of ending up in a nursing home. Ten percent answered that depleting savings was their greatest concern and 11 percent responded that they feared death.
When examined further, the top fear of being a financial burden is driven by concern over uninsured medical expenses. This was the top financial worry among men and women age 55+. The top fear over disabling diseases was Alzheimer’s.
If the fear is present, action is not, according to the study’s findings. “While two-thirds of people will actually need some long term care, such as home care, assisted living, or nursing home care, after they reach age 65, only 35% of people believe they will need such care,” according to the study.
And, according to the Genworth study, families are not talking in depth about long-term care needs as evidenced by the fact that 91 percent of all Americans have not discussed all three key long term care topics with their spouses; 92% have not discussed all three key long term care topics with their adult children; and 94% have not discussed all three key long term care topics with their parents. Those topics are: what long-term care options are most preferred; the potential roles and responsibilities of different family members for managed care; and, how long-term care will be paid for if required.
Other questions reaffirm the disconnect between known need and action. Genworth found that 78 percent of men and women would find it helpful to talk to a financial professional about long-term care planning while only 16 percent have had this conversation with a financial professional.
So, why is there such a lack of action? The study suggests that discomfort may be the biggest barrier. It found that “Fifty-nine percent (59%) are uncomfortable raising the topic while 49% believe their families would be uncomfortable talking about it. People also cite not knowing how to start the conversation (46%) and believing they will never need long term care as other major reasons (43%).”
Saturday, November 6, 2010
LISA Names New Executive Director
Darwin Bayston has officially been named executive director of the Life Insurance Settlement Association effective Nov. 15, 2010. Bayston replaces Doug Head who has been executive director since 2001 and who was executive director of a predecessor to LISA.
Bayston has most recently been Director of Consulting for AVS Underwriting, LLC in Kennesaw, GA. Previous to that he was Managing Director of Life Settlement Consulting & Management, LLC. He also spent 13 years as a member of the staff of the CFA Institute, serving as President and CEO from 1990 to 1993.
Bayston will relocate to Orlando, Fla., headquarters of the Association.
Bayston has most recently been Director of Consulting for AVS Underwriting, LLC in Kennesaw, GA. Previous to that he was Managing Director of Life Settlement Consulting & Management, LLC. He also spent 13 years as a member of the staff of the CFA Institute, serving as President and CEO from 1990 to 1993.
Bayston will relocate to Orlando, Fla., headquarters of the Association.
Thursday, November 4, 2010
Safer products, a “Moderate Credit Positive,” Moody’s Says
Life insurers are playing it more cautious with the type of product liabilities that they are taking on, a shift that Moody’s Investors Service, New York, says is “a moderate credit positive.”
In its Weekly Credit Outlook Moody’s Neil Strauss, a vice president-senior credit officer, describes findings in both a survey conducted by Guardian Life Insurance Company of America, New York, and data gathered by the Life Insurance Market Research Association (LIMRA), Hartford, Conn.
The Guardian study conducted during third quarter 2010 found that sales of traditional whole life insurance surged compared with other types of insurance while the LIMRA data shows whole life sales up about 20 percent so far this year, a rate that is far exceeding other products. LIMRA found that whole life represents over 30 percent of life insurance sales, Strauss notes. The sales increase is a credit positive for insurers, he adds. Strauss goes on to say that mutuals stand to benefit the most from this trend and because of their higher ratings have enjoyed both a flight to quality during turbulent economic times and now are enjoying renewed growth in their “flagship product.”
The new sales patterns are “credit positive” because they reduce the liability of insurers since whole life displays less volatility and higher retention rates than other insurance options.
Moody’s also noted other trends toward safety including the “de-risking of variable annuity guarantee products” and lower sales of investor-originated life insurance (IOLI) to senior citizens, both of which it calls “positive developments.”
Strauss points out that the Guardian survey shows greater interest among younger buyers, a shift which he writes “should be credit positive as mortality, lapse, and reputational risk should be lessened and be more in line with traditional expectations.”
However, Strauss cautions that in spite of lower insurer product risks, “trends can change quickly” and a sustainable recovery could reverse the shift to less risky products.
In its Weekly Credit Outlook Moody’s Neil Strauss, a vice president-senior credit officer, describes findings in both a survey conducted by Guardian Life Insurance Company of America, New York, and data gathered by the Life Insurance Market Research Association (LIMRA), Hartford, Conn.
The Guardian study conducted during third quarter 2010 found that sales of traditional whole life insurance surged compared with other types of insurance while the LIMRA data shows whole life sales up about 20 percent so far this year, a rate that is far exceeding other products. LIMRA found that whole life represents over 30 percent of life insurance sales, Strauss notes. The sales increase is a credit positive for insurers, he adds. Strauss goes on to say that mutuals stand to benefit the most from this trend and because of their higher ratings have enjoyed both a flight to quality during turbulent economic times and now are enjoying renewed growth in their “flagship product.”
The new sales patterns are “credit positive” because they reduce the liability of insurers since whole life displays less volatility and higher retention rates than other insurance options.
Moody’s also noted other trends toward safety including the “de-risking of variable annuity guarantee products” and lower sales of investor-originated life insurance (IOLI) to senior citizens, both of which it calls “positive developments.”
Strauss points out that the Guardian survey shows greater interest among younger buyers, a shift which he writes “should be credit positive as mortality, lapse, and reputational risk should be lessened and be more in line with traditional expectations.”
However, Strauss cautions that in spite of lower insurer product risks, “trends can change quickly” and a sustainable recovery could reverse the shift to less risky products.
Monday, November 1, 2010
Treasury Expects to Earn a Profit on AIG Investment
The U.S. Department of the Treasury anticipates that it expects to earn a profit on its loans to and investment in American International Group, New York.
The prediction is based on current market prices and the value of the assets supporting the loans to and preferred interests in AIG and Maiden Lane II and III, provided by the Federal Reserve Bank of New York as well as support from the Troubled Asset Relief Program (TARP) which will pay back the Federal Reserve Bank of New York’s holdings in AIG subs and assume those assets. The prediction assumes the restructuring announced on September 30 is completed which is subject to a number of conditions.
The U.S. government maintains that the IPO of AIA Group Limited and sale of American Life Insurance Co. reflect the substantial progress that AIG and the USG have made to date in restructuring the company.
The AIA IPO raised $20.5 billion of cash proceeds. The ALICO sale raised approximately $16.2 billion of total proceeds, approximately $7.2 billion of which is cash. This approximately $36.7 billion in aggregate proceeds will be used to fully repay the loan extended to AIG by the Federal Reserve Bank of New York (FRBNY) and a substantial amount of the FRBNY's preferred interests in certain AIG subsidiaries.
As part of the restructuring, AIG will draw up to $22 billion in remaining TARP funds from Treasury to purchase the FRBNY's preferred interests in the special purpose vehicles holding AIA and ALICO, and Treasury will receive those interests. The assets held by these special purpose vehicles, which include, among others, AIG's remaining shares in AIA and the non-cash proceeds received from MetLife for ALICO, significantly exceed the amount of the preferred interests and, as such, no losses are expected on those preferred interests.
After the restructuring, Treasury will own 92.1 percent of AIG, which equates to approximately 1.66 billion shares of common stock in the company. Based on the market closing price of AIG on October 29, 2010, these shares are worth approximately $69.5 billion. This amount significantly exceeds Treasury's current $47.5 billion cash investment in AIG. (This is in addition to the Treasury investment in the preferred interests described above.)
AIG has announced that it expects to complete the restructuring by the end of the first quarter of 2011. Based on current market prices and the value of the assets supporting the FRBNY's loans to and preferred interests in AIG and Maiden Lane II and III, the USG expects to earn a profit on its loans to and investments in AIG assuming the restructuring announced on September 30 is completed.
The prediction is based on current market prices and the value of the assets supporting the loans to and preferred interests in AIG and Maiden Lane II and III, provided by the Federal Reserve Bank of New York as well as support from the Troubled Asset Relief Program (TARP) which will pay back the Federal Reserve Bank of New York’s holdings in AIG subs and assume those assets. The prediction assumes the restructuring announced on September 30 is completed which is subject to a number of conditions.
The U.S. government maintains that the IPO of AIA Group Limited and sale of American Life Insurance Co. reflect the substantial progress that AIG and the USG have made to date in restructuring the company.
The AIA IPO raised $20.5 billion of cash proceeds. The ALICO sale raised approximately $16.2 billion of total proceeds, approximately $7.2 billion of which is cash. This approximately $36.7 billion in aggregate proceeds will be used to fully repay the loan extended to AIG by the Federal Reserve Bank of New York (FRBNY) and a substantial amount of the FRBNY's preferred interests in certain AIG subsidiaries.
As part of the restructuring, AIG will draw up to $22 billion in remaining TARP funds from Treasury to purchase the FRBNY's preferred interests in the special purpose vehicles holding AIA and ALICO, and Treasury will receive those interests. The assets held by these special purpose vehicles, which include, among others, AIG's remaining shares in AIA and the non-cash proceeds received from MetLife for ALICO, significantly exceed the amount of the preferred interests and, as such, no losses are expected on those preferred interests.
After the restructuring, Treasury will own 92.1 percent of AIG, which equates to approximately 1.66 billion shares of common stock in the company. Based on the market closing price of AIG on October 29, 2010, these shares are worth approximately $69.5 billion. This amount significantly exceeds Treasury's current $47.5 billion cash investment in AIG. (This is in addition to the Treasury investment in the preferred interests described above.)
AIG has announced that it expects to complete the restructuring by the end of the first quarter of 2011. Based on current market prices and the value of the assets supporting the FRBNY's loans to and preferred interests in AIG and Maiden Lane II and III, the USG expects to earn a profit on its loans to and investments in AIG assuming the restructuring announced on September 30 is completed.
Subscribe to:
Posts (Atom)
