How Mandatory Updates to Reserving Requirements and Mortality Tables Could Impact Your Clients’ Life Insurance Coverage

How Mandatory Updates to Reserving Requirements and Mortality Tables Could Impact Your Clients’ Life Insurance Coverage

Industry-wide changes are coming to the life insurance industry; what are they and how will they impact your clients considering acquiring coverage?

What is PBR?

Principle Based Reserving (PBR) is a new reserve method established by the National Association of Insurance Commissioners. Essentially, PBR is a revised reserve calculation that helps establish how much insurers will pay for future life insurance claims.

Recent updates to PBR will change the asset reserve calculation for an insurance company from a standard formula across the entire industry to a new formula that is more aligned with the actual risk that each carrier assumes.

 

Below are 4 benefits your clients could receive from the new calculation method:

1. Insurers are required to hold a certain amount of money in reserve based on the specific product and product feature chosen rather than a standard formula.

2. Insurers will have better solvency control which enables regulators to ensure that carriers abide by their insurance contracts.

3. Product pricing alignment has been established which ensures that the premiums your clients pay more accurately reflect the specific insurance coverage being provided.

4. Investment performance and financial strength of the related insurance companies are more accurately reported and are available to you and your clients.

 

What is the 2017 CSO Table?

The Commissioner Standard Ordinary (CSO) mortality table calculates the probability that people in various age groups will die each year. It is used by insurance companies to compute the minimum non-forfeiture values of life insurance policies.

 

Below are 4 major ways that 2017 CSO Table changes could impact your clients considering life insurance:

1. As of January 1, 2020, all insurance products from all carriers will be updated to become PBR/CSO 2017 compliant, so if your clients desire a current policy, they will need to place it in force by the end of the year.

2. If your clients are unsure whether they can meet the end-of-year deadline, they should select a policy that is already deemed compliant (some carriers have already fully transitioned their product lines).

3. Mortality rates will be updated in the new products, which is one of several factors used in product pricing, so the overall impact on premium rates for your clients may or may not result in a net premium increase.

4. Policies designed to maximize cash value growth are likely to be less efficient in the long run because the maximum premium that can be paid per dollar of death benefit will be lower as a result of the changes.

 

If you have questions or need to review these changes with an expert let us know how Grant Hinkle & Jacobs can assist you.