Day: March 12, 2011

Court to Conseco: You can’t triple life insurance premiums

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A federal court judge in California has ruled against Conseco Life Insurance Co. in a class action, barring it from hitting some 50,000 policyholders with sky-high rate increases on life insurance policies.

The ruling, delivered Wednesday in U.S. District Court for the Central District of California, centers on a block of Valulife and Valuterm universal life insurance policies that were sold in the late 1980s and into the 1990s. The decision could have serious repercussions for other carriers considering raising premiums on older policies, according to the plaintiffs’ attorney.

The origin of the case dates back to 2002, according to the ruling. That’s when the Indiana Department of Insurance raised concerns about the carrier’s insolvency and asset adequacy. That year, Conseco had filed for Chapter 11 bankruptcy protection after problems arose from its earlier acquisition of Green Tree Financial Corp., a mobile home financer.

To avoid having to post reserves, the insurer searched for a way to find some $173 million of reduced future liabilities, according to the decision.

Conseco picked out two blocks of UL policies with lower than expected lapse rates and computed a pricing formula that would cut future losses from those UL blocks, according to court documents.

This formula called for a sharp increase in the cost of insurance when the policies reached their 21st year of being in force — which would have been 2010 or 2011 for the customers who’ve had their policies the longest, according to the ruling.

The rate hike would have tripled the cost of insurance for those customers, causing the policies to run out of cash value, according to the plaintiffs’ attorney, Andrew S. Friedman of Bonnett Fairbourn Friedman & Balint PC.

Conseco had told the court last year that it would not put the rate hike in place. Judge A. Howard Matz, however, found that even the formulation of the proposed increases violated the terms of the policies. The judge noted that the policies require the insurer to determine its cost of insurance rates based on future mortality experience — which does not include lapse and interest factors.

Mr. Friedman said that the court’s decision may dissuade other carriers from trying to raise premiums on older UL policies, many of which were sold in the 1980s. He did note that he has not directly heard of any other carrier attempting to raise premiums the way Conseco did. But he added that insurers have been raising rates of late on UL policies. Those increases, he said, “have been devastating to older policyholders.”

Conseco Life expects to fight the decision.

“We were disappointed in the ruling and we intend to appeal,” said Tony Zehnder, a spokesman for CNO Financial Group, Conseco Life’s parent.

But Mr. Friedman applauded the decision. “The policies were designed to be profitable in the early years and unprofitable later. These rate increases wouldn’t have hit until year 21. These are people who have paid dutifully for 20 years and have the rug pulled out from under them.”

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Would You Buy a Life-Insurance Policy From This Machine?

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It is getting easier to buy term life insurance without undergoing extensive medical tests. But if you are relatively healthy, you may well have to pay extra for the convenience.

Buyers of no-frills term-life policies typically have to give blood and urine samples and even undergo more elaborate medical testing, while the insurance company collects reports from your doctors—a process known as underwriting.

Now, in what amounts to a radical change in the way life insurance is sold, insurers are beginning to use computers to assess applications in combination with prescription-drug and other data to determine insurablity.

On Friday, MetLife Inc.—the nation’s largest insurer by assets—more than doubled the number of states, to 47 from 23, where it offers Rapid E-Underwriting. Its rival Prudential Financial Inc. also has rolled out a computer-based underwriting program.

MetLife’s program is available to buyers 18 to 40 years old for as much as $500,000 in coverage. Prudential has a $250,000 limit on its computer-based option.

One of the furthest along in using the approach is Farm Bureau Life Insurance Co., which introduced computer-based underwriting last year, allowing customers to buy policies of up to $75,000. Last month, it increased the age limit to 60 from 55. The FBL Financial Group Inc. unit, based in Iowa, originally told agents the software would provide an underwriting decision within 15 minutes. But “close to 100% of the time, the response is nine minutes or less,” says Rich Kypta, a senior executive there.

Unlike permanent life insurance, which combines a death benefit with a savings account, term life simply pays a set benefit if the insured dies within a specified period. Even though prices of term-life policies have dropped in recent years, sales have been declining as financially strapped families cut expenses, more people relied on policies provided by employers and the number of agents declined. Those trends have led insurers to simplify and speed up the application process in hopes of boosting sales significantly.

The number of all individual life policies sold annually in the U.S. has dropped by 45% from 1985 through 2009, even as the number of households with children has increased by more than 25%. Last year, term-life sales fell 12%, as measured by annualized premiums and number of policies, according to industry-backed research firm Limra. It was the largest annual decline for the product since the firm began tracking the data in 1986.

But for consumers, the new products may well not offer the lowest premiums available at that particular insurer or elsewhere. Some companies charge buyers more for policies obtained through computer-based approaches to protect themselves when people slip through with health issues that would have otherwise been detected. Insurers say the prices vary depending on the age and health status of the applicant.

“A more-streamlined process will generally result in higher rates,” says Kent Sluyter, a Prudential senior actuary. “From a customer perspective, the incremental cost can be viewed as an offset for the convenience of not having to go through the full underwriting work-up.”

It also means consumers need to comparison-shop as thoroughly as they do with conventional term policies before they speed through these new sales processes by using online quote services.

Computer software plays a key role in the process of figuring out what kind of risk you pose. (In one variation known as “instant issue,” policies are approved on the basis of an application alone.) The holy grail of the industry is an approach that is less invasive and more cost- and time-effective than collecting blood and urine samples and sending them out for lab analysis, then for review by an underwriting department.

“Rigorous underwriting protects life insurers from taking undue risks, but it also adds considerable expense to the bottom line,” says a report by Deloitte Consulting for the Society of Actuaries that measured growing industry interest in the concept.

“The old process gave people multiple opportunities to drop out” because it took so much time, says William Mullaney, president of MetLife’s U.S. operations. “We believe e-underwriting will dramatically improve the number of people who actually complete the process from application to payment,” he says.

Indeed, for consumers, the new process is much quicker. According to MetLife and industry research, of 1,000 prospects who request a traditional application, 250 fill it out, 125 continue through medical underwriting—and just 80 end up buying a policy. The insurer’s goal has been to collapse the original six-week sales process into six or so minutes. In a telephone-based version now being rolled out, the process is down to about six days, the insurer says.

For now, MetLife is using a combination of computer decisions and human underwriting. As it improves the technology, it expects the percentage being made without human underwriters to improve significantly.

The insurer aims for a fully Internet-based approach by the summer. The insurer says it is so confident in the ability of its proprietary “decision engine” to piece together a picture of a buyer’s health that it has eliminated the option of conventional underwriting for all buyers of term-life policies between the ages of 18 and 40 who want a term-life policy of as much as $500,000. All buyers who fit that criteria are going through Rapid E-Underwriting.

Some insurers are trying other ways to persuade consumers to close the deal. At USAA in San Antonio, a financial-services company for people with military ties, members between the ages of 20 to 50 who have been approved for either a homeowners’ insurance policy or mortgage for a primary residence may be eligible for a “Simple Life for Home” policy.

Policies in face amounts from $100,000 to $500,000 are available, based on a short health questionnaire but no medical exam. The goal is to ensure people act quickly when their attention is focused on family finances and before procrastination sets in.

SOURCE

Banner Life Insurance AIG Genworth Guardian Metlife Investors Midland National
Protective Life Prudential Transamerica West Coast Life Insurance New York Life

Northwestern Mutual MassMutual Mutual of Omaha

Blue Cross Blue Shield of Texas
Aetna
Cigna
Humana
Celtic
United Health Insurance
Scott & White Health Insurance
Texas Life insurance
Austin Texas Health Insurance
Houston Texas Health Insurance
Dallas Texas Health Insurance
Texas Health Insurance