When we first ventured into the trust-owned life insurance (TOLI) servicing business, our lead product was a policy tracking and trust administration system – later called InsuranceIQ, and it was light years ahead of anything TOLI trustees had at their disposal. At the time, most trustees simply got an in-force ledger every couple of years, along with a rating update for the carrier, placed it all in the trust file and moved on. When asked about the condition of the policy, few could provide an in-depth answer. InsuranceIQ changed that. A proprietary rating system now alerted the trustee to issues with the policy and provided information on the (new) premium needed for under-performing policies to reach their goal. The InsuranceIQ annual report provided most trustees with their first systematized review of their portfolio.
Traditional ILIT support software solutions, even our own Standard InsuranceIQ Solution, as well as other “policy review” products do little to mitigate risk effectively. Granted, they can help minimize potential administrative miscues, and housing portfolio information in a centralized location is certainly a step up from past practices. But, you could argue that all you have done with a policy review is gather potentially liable policy information in a form that is easier to access. Annual policy reviews designed to “check the box” for audit and regulatory compliance purposes that were a viable option in the early 2000s to appease regulators do not solve policy problems or mitigate the liability associated with managing this unique asset. That is why many corporate trustees now realize handling the complexities of life insurance takes more than a policy review – it takes expertise and significant internal resources above and beyond software. Maintaining the required expertise in-house and dedicating the necessary resources internally, for an asset class that is revenue neutral at best, is nearly impossible.
Over the last few years, there have been dramatic changes in the TOLI marketplace. Cost of insurance increases from mainstream carriers like Transamerica, Voya, John Hancock, Lincoln National, and others have more than doubled the carrying costs in some policies. You may be able to show that in a policy review to your client, but how will you deal with the policy?
We have written about new policy illustration schemes that take a 6.75% illustrated rate and turn it into a 9% internal rate of return by adding bonuses and multipliers that are not guaranteed. Your policy review may have projected a successful outcome, but if it was based on faulty or misunderstood information, what good is it?
Unless you have experts on hand who can correctly analyze a policy and deal with policy issues as they arise, you will not be able to effectively maximize the value of the asset, which is your duty. You will only be able to document that the problem occurred. Taking the next step beyond policy review – remediation – is required,. Our Managed Solution product provides trustees with life insurance experts who analyze and develop succinct solutions to policy problems and document the trust file to help mitigate your risk.
Our remediation team does not just deal with problem policies but provides insight for any policy changes. Let’s say your client wants to lower the death benefit because of estate tax law changes; does your staff have a process in place that maximizes the value of the policy? If your client wanted to surrender their policy because they believe they no longer need it, does your staff have the capability to show that client the value of their policy – potentially keeping that policy and trust in place? Our team does.
For many enlightened TOLI trustees, the Managed Solution provides the perfect alternative. It allows them to raise client service levels and to mitigate liability for a fixed price that is often less than the cost of doing the work in-house.