Protection Products

Principle-Based Reserving and 2017 CSO


Protection

Effective Jan 1, 2017, state insurance commissioners agreed to make two significant changes to the way carriers are required to price and reserve for life insurance products.

While these changes were technically effective in 2017, states provided insurance companies three years to comply, or until Jan. 1, 2020. As is often the case, insurance companies have delayed implementation to maximize the benefits of the current regulatory framework, but now the time to make changes is arriving.

For the remainder of 2019, there will be a flurry of product reprices as carriers scramble to comply with these new guidelines by the end of the year. Before we can understand what’s to come, let’s dive into what is changing and what it means to you.

 

Principle-Based Reserving

As insurance products have evolved over the last several decades, the regulatory framework for proper reserving has often lagged. Universal life products and universal life with “secondary guarantees” have grown significantly in market share over the last few decades and this has challenged regulators to create a framework to ensure policy promises are sound and secure. Principle-based reserving (PBR) is the latest attempt to ensure that carriers are adequately capitalized on the insurance business they are putting in place. Specific to the rationale for PBR, the National Association of Insurance Commissioners (NAIC) stated the following:

PBR is a significant change in underlying laws and regulations to solve a problem created by our current regulatory framework. The issue lies with laws and guidance on how a life insurer is required to book its reserves. Insurers set aside funds, known as reserves, to pay insurance claims when they become due.

Prior to PBR, static formulas and assumptions were used to determine these reserves as prescribed by state laws and regulations. However, sometimes this rule-based approach leaves an insurer with excessive reserves for certain insurance products and inadequate reserves for others. The solution is to "right-size" reserve calculations by replacing a rule-based approach with a principle-based approach.

The overall pricing impact of PBR changes have appeared to be relatively minimal. The carriers that have already released pricing on 2020 compliant products have made relatively small tweaks to pricing, with modest cost reductions in some areas and increases in others. Technically speaking, the PBR changes are not requiring the carriers to reprice their products but will be a significant factor in how they price products today and beyond.

2017 Commissioners Standard Ordinary Table (CSO)

When carriers are pricing product and regulators are setting reserve requirements, mortality assumptions must be made based on a standard. These mortality tables are updated periodically. The last update was the adoption of the 2001 CSO. For policies effective in 2020 and beyond, the NAIC will require carriers to comply with the 2017 CSO. The 2017 CSO will reflect a more robust data set for mortality and will generally reflect overall increases in life expectancy. The new mortality tables will certainly play into the PBR discussion as it relates to the way in which companies reserve for policies. Furthermore, the major impact of the 2017 CSO adoption is that all products must be repriced to comply with the 2017 CSO rather than the current 2001 CSO.

MEC Limitations

As the 2017 CSO is adopted, it will have notable pricing and product performance impact on Modified Endowment Contract (MEC) limitations. Every insurance contract has a methodology to comply with Internal Revenue Code Sections 7702 and 7702A, which, among other things, determines how much premium can be paid into a contract without creating a MEC. The calculations for compliance with these tests are based on mortality assumptions. Shorter mortality assumptions allow for a higher non-MEC premium, while longer assumptions allow lower non-MEC premiums. When carriers adopt the 2017 CSO, life expectancy assumptions will be generally longer, which will lower the amount of premium that can be paid into a contract without creating a MEC.

To use an overly simplified example, a 50-year-old male acquiring $1,000,000 of coverage in a product on the old mortality tables could fund a policy with an annual premium of approximately $56,000 for a period of seven years. On the new mortality tables, that same client would be limited to funding his policy with only about $47,000 annually over seven years. Because the non-MEC funding level will be less, the net amount at risk in the contract will increase and cash accumulation products will likely be adversely affected. It remains to be seen if carriers will be able to offer lower cost of insurance charges or other value to offset this impact.

Moving Forward

Because all non-compliant policies must be placed no later than Dec. 31, 2019, carriers will be rolling out new product pricing throughout the year. Many carriers are waiting as long as possible to make this transition and are not disclosing their pricing until the transition period. There could also be additional repricing in early 2020 for carriers to maintain their competitive positioning relative to peers.

Producers should be aware of product pricing changes, transition deadlines and new pricing impacts on any active cases. There will certainly be some clients that will significantly benefit from the old pricing, which may not last much longer. This is especially true for those considering a cash accumulation policy funded to the MEC limit.

Key Takeaways

  • Many current policies will be repriced with placement deadlines of Dec. 31, 2019.
  • Cash accumulation policies will have lower non-MEC premium limits, potentially reducing efficiency.
  • Watch for communication regarding transition deadlines and to get clients to act to lock in the best value.

PBR CSO 2017 MEC Principle-Based Reserving Life Insurance Pricing

What “Coco” Teaches Us About Legacy Planning


Protection

I recently sat down with my wife and son, at their urging, to watch Disney’s animated movie, “Coco.” In a concise recap, the movie is about a young Mexican boy who is trying to understand why his family has alienated his deceased great-grandfather, especially on the Day of the Dead, a Mexican holiday that honors family members who passed on.

In typical Disney fashion, they put a nice spin on the story and, while their message of redemption plays well, I found myself thinking of a different message.

You see, in the movie we learn about the spirit world and how memory play a big part in a person’s legacy. When people in the spirit world are completely forgotten by their family in the living world, their spirit can no longer exist – it’s essentially your final passing. This reminded me of legacy planning.

Many advisors instruct their retired clients to allow their life insurance to lapse, except for a small amount for final expenses. They say, “Your children are grown, your home is paid for, you don’t need life insurance.” While I have always found this to be a bit cynical, watching “Coco” helped bring the concept into clarity.

Wouldn’t it be fantastic if, on your grandsons 25th birthday, you could provide him with a check for $20,000? And what if he received a check for the next 10 years, along with a handwritten note from you telling him how much he means to you? And, as he receives that check, wouldn’t it be wonderful if he could recall a favorite memory or two that you shared with him?

And, if he used that money to put a down payment on a home, or establish a college fund for his new baby, you would essentially be providing his family with a financial head start that maybe you didn’t have but wanted for him.

And, what if all of this could happen many years after you had passed away? Wait, what?! Yes, you can leave a legacy to your children, grandchildren, nieces and nephews or a favorite charity many years after you are gone. That is the power of life insurance. 

Like the characters in “Coco,” your clients want to remembered long after they leave this world. To all my advisor friends out there, please don’t let this movie’s message go to waste. Help your clients, today, to create their legacy for years to come.

Life Insurance Legacy Planning Estate Planning

Introducing Life PreView


Protection

There’s nothing worse than starting a life insurance case, having your client sign the paperwork and waiting 30 days … only to uncover an obstacle in underwriting.

“Oh, I didn’t tell you about that surgery? That medication? That DUI I had a few years ago?” No matter how much your clients trust you, there’s often a tiny – but hugely important – bit of information they forget to share.

When this happens, the last thing you want to do is reapply with another carrier, or explain to your client why the quote you gave them was way off. We get it. While we can’t give you perfectly healthy clients, we CAN help you see potential roadblocks BEFORE they become a setback.

Private. Convenient. Secure.

With Life PreView, you email your clients a personalized, secure questionnaire to get an accurate snapshot of their health history. It will ensure you have the right product, with the right carrier, quoted at the right price – no awkward conversations, frustrating delays or reselling needed.

Your clients can complete the questionnaire in their own home, at their own convenience. They just need to have the following handy:

  • Current medication information, including the name(s) and dosage
  • List of any medical procedures, including dates, within the last 10 years
  • List of any driving violations (speeding tickets, accidents, DUIs, etc.), including dates, within the last three years

Life PreView

Stop looking for perfectly health clients and start looking for perfectly set expectations. When you use Life PreView, you’ll ensure accurate pricing, faster placement and, more importantly, happier clients. Try it on your next application!  

Try It Now

Access requires logging in to the Ash Brokerage Producer Portal. If you have a password, click here to enter your username and password, and you'll be taken directly to the Filter.

Try It Now

If you have single sign-on, connect through your company page as usual, then click Underwriting, then Preparing Your Clients.

Life PreView Underwriting Screening PreScreen Tools Life Insurance

Figuring Out Fluidless Underwriting


Protection

This post covers a new tool on the Ash Producer Portal. Log in now to try it for yourself!

Fluidless, accelerated, express, simplified – no matter the words you use, one thing is certain: More and more insurance companies are offering streamlined underwriting processes.

How do you keep track of them all? How do you know if your clients qualify? Well, we figured it out – so you don’t have to.

Ash Brokerage is proud to introduce the Fluidless Underwriting Filter. We’ve taken the programs and requirements from leading carriers and put them into one easy-to-use tool. In just seconds, you can see if your client qualifies for expedited underwriting. 

Run a Quick Check

  1. Fill out six data points about your client

    FluidlessFilter_screenshot1.jpg

  2. See a list of all potential options – including Ash Brokerage’s top recommendations

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  3. Compare carriers, qualifications and knockouts side by side
  4. Run a quote or apply immediately – coverage is just a few clicks away!

Place Cases Faster

We see far too many clients going through full underwriting when it’s just not needed. If your clients don’t have major medical issues, there’s a good chance they could qualify for one of these programs – and get insurance in days, not months. Why wouldn’t you check?! You’ll potentially save your clients from the hassle of an exam, and you’ll save your business valuable cycle time.

There are no exams. No samples. No hassle. No kidding! 

 

Ash Answers

Have questions? Or clients who don’t qualify for fluidless options? We’re here for you! No matter the challenges of your case, our underwriting team is committed to the mission of insuring each client you bring our way. Highly trained and experienced in both medical and non-medical underwriting, we’re your advocates every step of the way. 

 

Try It Now

Access requires logging in to the Ash Brokerage Producer Portal. If you have a password, click here to enter your username and password, and you'll be taken directly to the Filter.

Try It Now

If you have single sign-on, connect through your company page as usual, then click the banner on the homepage (or click Fluidless Underwriting Filter from the Quotes menu).

Underwriting Fluidless Underwriting Filter Accelerated Underwriting Express Underwriting Life Insurance

The Buzz About Marijuana


Protection

Editor's Note: This post was originally published on the Ash Brokerage blog in 2015. To date, it's the most popular post on our website. Why? We think it's because our underwriters aren’t afraid to discuss a challenging and potentially taboo topic that's becoming relevant to more of your clients every single day. The piece below has been updated to reflect changes since the original was posted. If you have any questions or concerns about underwriting, don't be afraid to ask our team! They'll always find an answer.

 

Marijuana use is a hot and evolving topic in life insurance underwriting. For those of us who’ve been around the insurance block a time or two, we can certainly remember the days when any type of marijuana use resulted in an automatic decline. Today, the answer isn’t so cut and dry.

 

To understand the topic, look at today's legal treatment of marijuana:*

  • As of March 2018, 29 U.S. states, plus the District of Columbia, have laws that legalize marijuana in some form

  • Nine states – Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington and Vermont – as well as D.C., have adopted the most liberal laws, which legalize marijuana for recreation use

  • Several more states are either considering legislation or potential ballot measures in 2018

 

Underwriting Considerations

In recent years, our industry has increased acceptance of applicants using marijuana recreationally and for medicinal purposes. We have seen offers from best class nonsmoker to decline.

 

Minimal use is acceptable with some carriers; while moderate to daily use may result in a decline. Multiple factors impact risk assessment for applicants using marijuana, including:

  • Amount and frequency of marijuana used

  • Method of delivery into the body

  • Underlying condition for which marijuana was prescribed

  • Other potentially related factors: avocations, driving record and occupation

 

Some carriers will offer smoker rate classes to an applicant who smokes marijuana, while others will offer nonsmoker rates if use is minimal and potentially preferred rates if the client otherwise qualifies.

 

Applicants with a valid marijuana prescription to treat symptoms of an impairment may be assessed an additional rating for their impairment. Certain impairments or co-morbid conditions will result in an automatic decline, even if the applicant has a valid prescription or lives in a state which has legalized recreational marijuana.

 

Applicants with a history of alcohol or drug treatments, or applicants currently using multiple recreational drugs, are considered an unfavorable risk. Likewise, applicants with significant mood disorders and past criminal activity are also considered unfavorable.

 

Cannabidiol, also known as CBD, can be derived from hemp or marijuana. CBD products created from marijuana have very high levels of THC, therefore applicants using CBD products created with marijuana will fall under the carrier’s guideline for marijuana use. Applicants using CBD products produced from hemp will not be considered as marijuana users.

 

Other things to note for underwriting:

  • Today’s insurance labs cannot measure quantity of use, nor how the marijuana was delivered into the body

  • Some carriers automatically test for marijuana, while others will reflex the test as deemed necessary

  • Most carriers will request an attending physician statement (APS) and/or copy of the valid prescription for applicants being treated with medical marijuana

 

Business or Employment Considerations

Marijuana sales remain illegal at the federal level, but the marijuana industry is growing like a very profitable weed. According to Tom Adams, managing director of BDS Analytics, national marijuana sales will rise to $11 billion in 2018, and to $21 billion in 2021.*

 

With the federal government still viewing marijuana sales as illegal, almost every insurance carrier will not offer insurance on any employee of a marijuana farm or dispensary, or owners of farms or dispensaries. As of today, only a small handful of traditional life insurance carriers will consider select clients on an individual basis for personal coverage only. 

 

Don’t Let Your Case Go Up in Smoke

Since there are so many variables influencing the underwriting decision for both recreational and medical marijuana users, it’s impossible to recommend a carrier without having all the facts. The good news is at Ash Brokerage, you have a dedicated staff of seasoned underwriters available to answer your questions regarding marijuana usage and assist you every step of the way. We’d welcome the opportunity to talk with you about your client’s specific needs.  

 

Additionally, the Ash Brokerage website has numerous impairment questionnaires, including a marijuana questionnaire, which are useful in evaluating medical, financial or avocation risk. They’ll help you uncover potential issues before collecting a formal application, and ensure your call with your Ash underwriter is productive.

 

About the Author

For more than 34 years, Charlie Kuhn has taken a personal interest in every case. To her, it’s more than a file – it’s a person trying to protect the people they care about, and she can think of no better vocation than to help provide financial and emotional security for others. Through her personal commitment to continuous professional growth, Charlie is one test away from becoming an Associate of the Life Management Institute. She is already an Associate of Customer Service with LOMA, has passed all three of the Academy of Life Underwriting exams, and is certified in EKG interpretation.

 

Learn More

Ash Brokerage Questionnaire: http://go.ashbrokerage.com/WC2018-04-UW-8151_LP-Content.html

*CNN Money, “The U.S. legal marijuana industry is booming,” Jan. 31, 2018: http://money.cnn.com/2018/01/31/news/marijuana-state-of-the-union/index.html

Underwriting Life Insurance Marijuana Medical Marijuana Recreational Marijuana