Recently, I wrote a Blog (If the Cost of Insurance Goes This High, You Are Guaranteed To Have Some Angry Clients) about an email that was received from a Universal Life carrier that said they expected the cost of insurance (COI) inside their Universal Life policies to rise dramatically by the end of this year.
I ended the Blog with the comment…“while we do not know the outcome of this situation right now, it is certainly a scary harbinger of things to come.”
While I assumed this particular carrier was not the only one thinking of raising rates, I had no way to quantify how many carriers might be. Recently, I ran across an article from 2012 that referenced a survey of life insurance CFOs. The article pointed out that “almost half (45%) of the respondents view a prolonged low interest rate environment as the greatest threat to their business.” In addition, “over two-thirds say they expect a three-to five-year period of low interest rates, followed by a gradual increase.” In other words….what many fear most they expect to happen.
The article went on to say, “CFOs have increased the cost of insurance rates for interest-sensitive products as a way to better manage their interest rate risk.” And later, the article stated that “just over a third of respondents have increased COI rates, expense loads or both on at least some part of their life block.”
Maybe the “things to come” I spoke of have already come. Managing Universal Life policies over the last decade was a challenge because of the constantly dropping crediting rates. Imagine what it will be like if we begin to also experience rapid cost increases.