Interest Rates, Reserving Shape New Insurance Products

Principle-based reserving  regulations, combined with the continued low-interest rate environment, will be the main drivers of life insurance trends in the coming year. That’s the word from Mike Santore of Milliman, who will present a session on “Life Product Update” at this week’s Life Insurance Conference in Chicago.

The PBR approach is meant to enhance the current system for calculating policy reserves. This will result in reserve levels that more accurately reflect risks assumed by life insurers for the policies they underwrite.  The PBR system will provide regulators with tools to properly monitor a life insurer’s reserve levels through annual reporting and review.

“Carriers are determining what PBR means to them and how it influences their product designs,” Santore said. “They can anticipate what their competitors will do to address and account for the details associated with PBR.”

Tax reform, which was enacted at the end of December, also will influence new insurance products, Santore said. “Companies are beginning to look at how the new tax law is going to change the products they price.”

Innovations in distribution and underwriting will have a bigger effect on the life insurance industry than in previous year, he predicted

“The life side of the insurance industry has been behind the property/casualty side when it comes to predictive analytics or big data. The life side is looking at ways of using big data to make the underwriting process quicker, as well as to get new products issued more quickly.”

Indexed universal life is still a big seller among life insurance products, and Santore said he expects that trend to continue.

“Universal life in general is still struggling with the low-interest rate environment,” he said. “But with PBR and the new tax law, carriers are looking at ways to reinvigorate the UL market, how to design UL with secondary guarantees under PBR.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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