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The Next Five Years: Protection-Focused Life Insurance Term Life Insurance

The Next Five Years: Protection-Focused Life Insurance Term Life Insurance. 2010 Life Insurance Conference. Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC. Major Factors Driving Term Life Over Next Five Years. Principle-based approaches Demographic trends Sales compensation.

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The Next Five Years: Protection-Focused Life Insurance Term Life Insurance

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  1. The Next Five Years: Protection-Focused Life InsuranceTerm Life Insurance 2010Life Insurance Conference Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC

  2. Major Factors Driving Term Life Over Next Five Years • Principle-based approaches • Demographic trends • Sales compensation • Technology • Interest Rates • Mortality (esp. improvement, older ages) • Reinsurer Participation

  3. Interest Rates will Impact Term Life in Several Ways Risk Free Rates Steer Return Potential Investment Earnings Rates on Assets Funding Costs for Capital Solutions Competitiveness of Alternative Products Steadily Increasing Interest Rates will Provide Some Pricing Relief

  4. Principle-Based Approaches PBR Related Issues • MCEV • Rating Agency expectations • 20-30 year term bigger beneficiaries • Need for high ART period? • Competing products may be disadvantaged • General view is that term life will benefit from PBR

  5. Mortality Improvement Refinement Older Ages End of LPP Common today in pricing, but tempered in future, particularly at very young, very old ages Stabilization of risk class numbers allows for more robust, consistent data Dichotomy in views surrounding slope of older age mortality Mortality jump may be tempered by lower premium spike

  6. Demographic Trends Emerging “sweet spot” not traditional term zone Longer working lives extends need for life coverage Less time than money? Reaching ethnic, female, unemployed, rich

  7. Reinsurance • Less likely to be source for capital relief (coinsurance) • More likely to be partner providing underwriting and mortality guidance and earnings smoothness • May provide avenues to keep ROP in the game, riders • Trend of increasing retention limits will slow/stop • Profits beyond the level premium period, survivorship term

  8. Sales Compensation • Levelizing compensation less likely to impact prices much on base term • Compensation on policy fees, favorable experience, post LPP re-underwritten • Greater compensation for term conversions in preferred windows • Agent-owned reinsurance rebirth

  9. Technology Underwriting Up-Selling Policy Issuance Conversion Programs Internet-Friendliness • Speed-medical records • Drug databases • Lifestyle databases • Smart algorithms

  10. Bottom-Line for Term Prices will drop slightly at ages 40-60; same or higher elsewhere 30-year Comeback Process/Technology Improvements broaden market Structures to retain customers after LPP Pivotal product as long as economic climate viewed as harsh

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