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New York Regulator Aims to Require Life Insurers Justify Higher Rates on Old Policies
From todays Wall Street Journal
Companies say ultralow interest rates are making policies much less profitable than anticipated
Life insurers will be forced to justify charging higher rates to owners of older policies under a new proposal from New York’s financial industry regulator.
The New York Department of Financial Services’ proposed rule will require these insurers to explain their math and document all increases, according to a person familiar with the matter. New York’s plan applies only to insurers operating in the big state, but could be widely copied by other insurance departments in what has emerged as a major problem for many middle-class retirees.
Tens of thousands of policyholders in the U.S., often elderly, have been hit with higher charges for keeping their combination savings-and-death-benefit policies in place. The percentage increases have ranged from the mid-single digits to more than 200%, according to financial advisers.
Insurers maintain that ultralow interest rates since the financial crisis are making the policies much less profitable than anticipated when they were sold. Insurers typically invest customers’ premiums in bonds until needed to pay claims, and they say the higher charges are permitted under the contracts.
In these “universal life” policies, a death benefit is combined with a tax-advantaged savings account. Millions of Americans own them.
In selling universal life, insurers typically aim to earn 1 to 2 percentage points more on the premiums they invest than they pay out in interest to policyholders, according to Deloitte Consulting LLP. Most insurers aren’t earning this spread today and could, if rates remain ultralow, wind up paying out more to policyholders than their investments earn, consultants say.
To read the rest, please visit the Wall Street Journal.
From todays Wall Street Journal
Companies say ultralow interest rates are making policies much less profitable than anticipated
Life insurers will be forced to justify charging higher rates to owners of older policies under a new proposal from New York’s financial industry regulator.
The New York Department of Financial Services’ proposed rule will require these insurers to explain their math and document all increases, according to a person familiar with the matter. New York’s plan applies only to insurers operating in the big state, but could be widely copied by other insurance departments in what has emerged as a major problem for many middle-class retirees.
Tens of thousands of policyholders in the U.S., often elderly, have been hit with higher charges for keeping their combination savings-and-death-benefit policies in place. The percentage increases have ranged from the mid-single digits to more than 200%, according to financial advisers.
Insurers maintain that ultralow interest rates since the financial crisis are making the policies much less profitable than anticipated when they were sold. Insurers typically invest customers’ premiums in bonds until needed to pay claims, and they say the higher charges are permitted under the contracts.
In these “universal life” policies, a death benefit is combined with a tax-advantaged savings account. Millions of Americans own them.
In selling universal life, insurers typically aim to earn 1 to 2 percentage points more on the premiums they invest than they pay out in interest to policyholders, according to Deloitte Consulting LLP. Most insurers aren’t earning this spread today and could, if rates remain ultralow, wind up paying out more to policyholders than their investments earn, consultants say.
To read the rest, please visit the Wall Street Journal.
