Tag Archives: term life insurance

VM-20 framework presents new product design and pricing considerations

The new reserve framework outlined in Chapter 20 of the Valuation Manual (VM-20) focuses largely on term and universal life insurance with secondary guarantee products. The VM-20 aims to “right size” the reserves by employing a principle-based approach.

This new approach allows companies to use mortality, surrender rates, and discount rates that reflect their experience, and that are based on their actual investments and strategies. Starting in 2020, this framework is now the required reserving approach for all U.S. life insurance products issued.

The new framework outlined in VM-20 will likely create some fundamental changes in the products available on the market. Some of these changes are clear, while others are yet to be explored or even contemplated. In this paper, Milliman’s Paul Fedchak, Ian Laverty, and Uri Sobel explore some of the possibilities.

Milliman survey reveals 25 out of 28 companies use or plan to use accelerated underwriting in term life insurance

Milliman recently released the results of its biennial broad-based survey on term life insurance. The survey captured historical data for key industry competitors as well as company perspectives on a range of issues pertaining to these products into the future. The Term Life Insurance Issues report is based on a survey of 28 term insurance companies. It includes detailed information on underwriting trends and other product and actuarial issues such as sales, profit measures, target surplus, reserves, risk management, product design, compensation, and pricing.

Key findings of the study include:

  • Term sales were fairly stable over the survey period (calendar years 2015 to 2018), with 20-year level premium term sales at 41% to 42%, followed by 10-year at 23% to 25%, 30-year at 14% to 15%, 15-year around 11% to12%, and yearly renewable term at about 5%.
  • The predominant profit measure relative to the pricing of new term products is an after-tax, after-capital statutory return on investment/internal rate of return (ROI/IRR). The average ROI/IRR target for term products reported by survey participants was 9.8%.
  • Of the 26 survey participants planning to implement principle-based reserves (PBR), 14 intend to implement PBR in calendar year 2020. The other 12 participants implemented PBR in calendar years 2019 or prior. Also, 23 of the 28 survey participants implemented the 2017 Commissioner’s Standard Ordinary (CSO) mortality table in calendar year 2019 or prior. Four will implement the 2017 CSO in calendar year 2020. For one participant implementation is taking place in both periods.
  • In both 2017 and 2018, the percentage of new term business that participants ceded to reinsurers ranged from 1% to 100%, with an average of 44%. The median was 45% in 2017 and 38% in 2018.
  • Currently, 20 of the 28 survey participants use accelerated underwriting programs for term life insurance, with an additional five participants planning to implement such programs.
  • The use of predictive modeling in the life insurance industry continues to increase. Fifteen survey participants use predictive analytics in the accelerated underwriting algorithms. Six participants reported using predictive analytics in underwriting of term products under other underwriting approaches (i.e., other than accelerated underwriting).

Similar to the past several years, carriers continue to deal with the implementation of PBR, the 2017 CSO, accelerated underwriting programs, and predictive models. The implications of these significant changes are yet to be seen fully, and monitoring of results will be important in the years to come.

The 146-page “Term life insurance issues – Detailed Report” is available for purchase by visiting the Milliman website or by calling Gina Ritchie at (312) 499-5605.  Participating companies receive a complimentary copy of the detailed report, as well as individual company responses reported on an anonymous basis.

New Milliman survey reveals 33 out of 40 companies use or plan to use accelerated underwriting in term life insurance

Milliman recently released the results of a new broad-based survey on term life insurance, capturing historical data for key industry competitors as well as company perspectives on a range of issues pertaining to these products into the future. The Term Life Insurance Issues report is based on a survey of 40 term insurance companies. It includes detailed information on underwriting trends and other product and actuarial issues such as sales from calendar years 2013 to 2016, profit measures, target surplus, reserves, risk management, product design, compensation, and pricing.

Key findings of the study include:

• The bulk of term sales are non-return of premium (ROP) term (96% of total term sales). This percentage was fairly stable over the survey period.
• The predominant profit measure relative to the pricing of new term products is an after-tax, after-capital statutory return on investment/internal rate of return (ROI/IRR). The average ROI/IRR target reported by survey participants was 8.9% for ROP term products and 9.9% for non-ROP term.
• Of the survey participants planning to implement principle-based reserves, 20 are planning implementations spread over the allowed three-year phase-in period. Similarly, 14 participants plan to implement the 2017 Commissioner’s Standard Ordinary (CSO) mortality table over the three-year period allowed. Twelve participants intended to implement the 2017 CSO in calendar year 2017.
• Currently, 17 of the 40 survey participants use accelerated underwriting programs for term life insurance, with an additional 16 participants planning to implement such programs.
• Scoring models are being used by 18 of the 40 participants to underwrite their term policies: nine use purely external scoring models, five additional participants use purely internal scoring models, and the remaining four use both internal and external models. The majority (13) of these participants are using scoring models with their accelerated underwriting programs, with the remaining five using them with other underwriting approaches.

“Carriers are currently dealing with major regulatory actions, and emerging innovations in life underwriting. These recent changes are disrupting the term life insurance market in ways that haven’t been seen for some time,” says Sue Saip, consultant in Milliman’s Chicago office.

The 295 page “Term life insurance issues – Detailed Report” is available for purchase by visiting the Milliman website or by calling Gina Ritchie at (312) 499-5605. Participating companies receive a complimentary copy of the detailed report, as well as individual company responses reported on an anonymous basis.