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Arizona Life Insurance News Life Insurers Moving Toward Using Mortality Management to Increase Profits EDISON, N.J.--(BUSINESS WIRE)--May 21, 2008--Life insurance companies are starting to consider using mortality management as a strategy to improve their bottom line, according to a survey conducted by MajescoMastek and Transamerica Reinsurance, a division of Transamerica Occidental Life Insurance Company. New rules-based underwriting platforms and processes can enable insurance carriers to reduce their mortality expense, as well as significantly improve the cost structure, acceptance rates and mortality experiences of their life insurance products programs. The majority of insurers polled base their new business process on work flow and images as well as capturing application and evidence in data form versus paper. Carriers are starting to consider rules-based underwriting engines, which provide numerous benefits, including the ability to assess risks on a real-time basis, and review and audit decisions. MajescoMastek, a leading IT solutions provider focused on the insurance industry, and Transamerica Reinsurance, a leader in assessing and managing mortality risk, surveyed about 50 insurers on managing mortality expenses and unveiled results at the ACORD LOMA Insurance Systems Forum last week in Las Vegas. The two companies have partnered for five years in providing value-added solutions for the term-life market. Why is mortality management so important? An analysis by Transamerica Reinsurance found that a company can generate $4 million in increased profit for every $10 million in new annual premium by reducing claims expenses by 6.6 percent over the life of the block of policies. By comparison, the company also found that improving productivity by 10 percent in underwriting and new business processing generates only $500,000 in increased profit for the same example. ýWhile insurers historically have not invested in tools and processes to manage mortality expenses, that could be changing as insurers recognize the potential to increase profits and reduce costs,ý said Harold Apple, senior vice president of VectorMastek, a subsidiary of MajescoMastek. Mortality management can ensure that individual risk decisions are made consistently with a carrierýs pricing assumptions and underwriting guidelines; enable the predictability of mortality studies through the capture of medical evidence in data form; and provide underwriting management with productivity and management tools. ýUnderstanding and managing mortality risk will become even more essential to a life insurerýs success as we move toward principle-based regulation and capital markets financing solutions,ý said David Dorans, Vice President, Product Consulting & Development, Transamerica Reinsurance. ýIn order to meet new regulations and satisfy new players, management needs a granular understanding of how their companyýs products are performing. This requires significantly greater access to information. IT departments will be asked to provide detailed information on mortality and to quickly get numbers on such things as actual versus expected in preferred classes or the number of underwriting exceptions in a block of business. New underwriting technology platforms can enable this,ý Dorans said. Among the technologies that can improve mortality management operational efficiencies are: Service Oriented Architecture (SOA); Straight Through Processing (STP); Web-based systems using Microsoft.NET and J2EE technology; communication between provider, internal system and client that utilizes ACORD-compatible TXLife transactions; and the capability to operate anywhere using a Web-based system that supports telecommuting, overflow staffing, etc. Their plan: Offer individual policies that let consumers elect higher deductibles and savings accounts, among other components, to lower premiums to as little as $54 a month. Observers say the expanding individual-insurance market comes courtesy of a rise in the number of companies, especially smaller businesses, that have pared coverage as a result of double-digit cost increases. A study from the Rand Corp., a California research nonprofit, revealed that health-insurance expenses rose nearly 30 percent from 2000 to 2005 for companies with 25 or fewer workers. Companies with 25 to 49 staff members saw a 16 percent jump in coverage prices, while businesses with 50 to 99 employees experienced a 25 percent cost gain. Rand Corp.'s researchers said the pricier coverage didn't make small businesses likelier than large companies to cancel health plans, but a separate report showed stark declines in the ranks of smaller employers providing insurance. A recent survey from SurePayroll, a Glenview, Ill., paycheck-processing company, found that 44 percent of U.S. businesses with 100 or fewer workers offer health insurance, leaving more than half of small-business employees without coverage through their jobs. What's more, the number of small operations providing health insurance dropped 32 percent compared with a year earlier. Also, research from the University of Minnesota found that 59 percent of all employers in Nevada offered health insurance to workers; that number dropped to 53 percent in 2005. Insurers see opportunity in those figures. When employees aren't losing coverage altogether, they're facing restricted plans that don't insure dependents, said Ellen Laden, a spokeswoman for Golden Rule Insurance Co., a UnitedHealth Group subsidiary that last week entered the Nevada market to provide individual coverage. About 19 million Americans buy their own health plans today, up from 17 million two years ago, Laden noted. An additional 45 million Americans - 15 percent of the country - lack insurance altogether. In Nevada, the proportion of uninsured is even higher, at about 21 percent, or 456,000 residents, the Robert Wood Johnson Foundation reports. And numbers from the Kaiser Family Foundation show 70 percent of uninsured Nevadans either work or live with a full-time worker. Nationally, 40 percent of individuals who bought Golden Rule plans with health-savings accounts in 2007 said they were previously uninsured. "Nevada has a huge pool of working people who have to buy their own health insurance, particularly those who work for small business," Laden said. "Add to that group the self-employed, particularly those who own retail shops or businesses that involve tourism. Outside Las Vegas, you have farmers, ranchers, truckers, self-employed consultants - all of those people also have to purchase their own health insurance." So insurers are responding with lower-cost individual coverage. Golden Rule's plans include high-deductible options with lower premiums, policies linked to health-savings accounts and more traditional coverage with co-pays. The price breaks can be substantial. Golden Rule's "saver" plan covers often-costly treatments such as in-patient hospital visits, outpatient surgeries and CAT scans, while limiting coverage for routine doctor visits. With a $2,500 deductible, the saver plan can cost as little as $54 a month in premiums. For $95 a month, deductibles can fall to $1,500. Other insurers are aggressively targeting the demographic segment that Mohit Ghose, a spokesman for trade group America's Health Insurance Plans, called "the young and invincible" - the 20-somethings who frequently opt out of company health insurance because they believe it's an unnecessary expense. Anthem, the state's second-biggest insurer after UnitedHealth's Sierra Health Services, created its Tonik line of plans for people ages 19 to 29. The policies cover preventive treatments, serious emergencies, dental care and eyeglasses for premiums ranging from $91 to $178 a month. Other Anthem plans for individuals include Lumenos, which emphasizes preventive care and starts at $96 a month, and RightPlan PPO, which features $40 co-pays on doctors' visits and no medical deductibles. About 95,000 of Anthem's 270,000 or so members in Nevada purchased individual plans, and the insurer expects both individual and group lines to grow in the Silver State thanks to sustained population growth, said Scott Workinger, Anthem's regional vice president of sales for California, Nevada and Colorado. The company is developing a new individual-oriented product line with up to 10 plan choices. Executives have scheduled a rollout before the end of 2008. "Statistics indicate employer-sponsored coverage nationwide continues to decline," Workinger said. "As a response, Anthem Blue Cross and Blue Shield wants to offer as many different options to folks as we can, and also to reach the uninsured." Aetna officials weren't available to discuss specific plans by press time, but the company did send a statement noting that it entered the individual market here with its Aetna Advantage Plans for Individuals and Families in May 2007. The program's eight choices include hospitalization plans, high-deductible policies, health-savings accounts and traditional PPO coverage. America's Health Insurance Plans is also promoting individual insurance. The association's research found that many consumers believe individual coverage is far too expensive to afford, so the group published statistics showing that the average individual health plan costs $2,613 a year, or $217.75 a month, in premiums. It's also taken on the widespread belief that insurers apply conditions that make individual coverage tough to obtain: Its research showed roughly 90 percent of consumers who seek individual policies will get them. But one reform in particular would bolster the sale of individual plans, Ghose said. He'd like to see individual consumers reap the tax benefits that consumers and businesses enjoy when they buy employer-sponsored insurance. "The system treats the employed person better than it does the individual who seeks out coverage on their own," Ghose said. "You and your employer get a tax break, but you don't get any tax break if you go out and do the right thing for yourself and your family. Maybe a tax incentive might be the last bit of sweetener to get people to purchase coverage."
ýIn times of economic volatility, Americans are staying in the workforce longer, making it more important than ever before to make sure their families are protected against the unexpected,ý said Greg Linde, vice president of individual life for the Principal Financial Group. ýNo one wants to think about their own mortality, but being prepared can alleviate some of the angst.ý Principal 20 year term is now available until age 65 and Principal 30 year term is available until age 55 (non-tobacco only), up five years from previous policies. A couple with two term policies from The Principalý has the option to convert their policies into one survivorship universal life (SUL) policy, offering great flexibility in estate planning. The Principal SUL Protector is a universal life insurance policy that insures two people and pays benefits after both die, providing estate protection when itýs needed most. Other features of life insurance from The Principal include a complimentary Financial Services Hotline for beneficiaries and a grief support service to help survivors cope with the loss of a loved one. ýAt the same time weýve increased the issue age on select products, weýve also reduced the price on many of our term products,ý said Linde. ýBy enhancing our policies, weýre helping our customers plan for a more secure financial future regardless of the way the market swings.ý From Here to SecuritySM To help identify an appropriate level of coverage, The Principal also offers an innovative program to educate consumers on life and disability insurance and to help them achieve financial security. This program is called ýFrom Here to Security,SMý and it offers consumer education with easy-to-read guides to understanding disability and life insurance. The materials contain definitions, examples, statistics and a personal needs-analysis worksheet. Insurance calculators allow individuals to run "what if" scenarios to determine the appropriate level of coverage for their individual situation. For more information about term life insurance or the From Here to Security program, contact your Principal Financial Group representative or visit www.principal.com. About the Principal Financial Group The Principal Financial Groupý (The Principal ý)2 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $304.2 billion in assets under management3 and serves some 18.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com As second marriages become more and more common, beneficiary designations become more complicated. If you are remarried, choosing a beneficiary for your life insurance policy may not be simpleespecially if you have children from a previous marriage. When it comes to life insurance, how do you make sure your spouse is provided for without forgetting your children? If you already have life insurance with your first spouse as the beneficiary, you need to make sure you can change the beneficiary. If you are divorced, you may not be able to change the beneficiary designation. Bring your divorce decree with you to an attorney so he or she can make sure you do not violate the decree. If you can't change your beneficiary, you may want to buy additional life insurance or retirement plans that will include your new spouse. The next question is who should be the beneficiary of the policy? If you name your new spouse, your children are not guaranteed to receive any of the money. If you name your children, your spouse will not get anything. The solution may be to create a revocable trust and name the trust as the beneficiary of the life insurance policy. When you die, your life insurance policy will fund the trust. You can set up the trust however you like. For example, you could allow your spouse to access the money while he or she is alive and have the remainder go to your children after your spouse dies. Choosing a beneficiary for a life insurance policy is not as simple as it seems. Consult with an attorney to determine what the best option in your situation is. Cash in on Your LifeIt's easier now to sell a life-insurance policy for immediate cash. But it's not always a good idea. Kenneth Sahs, 71, faced a once-in-a-lifetime decision last year. His $500,000 convertible term life insurance policy would soon expire. Sahs could drop it and get nothing or convert it to universal life, a form of cash-value insurance, and take on $12,000 a year in premiums. Then Sahs and his wife, Marie, read in Kiplinger's that they had a third choice: to sell the policy to an investor. To their delight, the Sahses got a quick $125,000. No more eventual death benefits, but no more premiums, either. "Insurance companies don't tell you there are opportunities like that," says Marie. "It's like a treasure chest you don't know to look for." Many seniors are now selling their life-insurance policies to raise cash. In 2006 alone, policies worth $6.1 billion in death benefits changed hands. This trade wouldn't be possible, however, except for one controversial aspect: The party on the other end profits from your death -- and the sooner, the better. When you (or a family member who may actually own the policy on your life) sell the insurance, the buyer becomes the owner and beneficiary. Upon your death, this stranger stops paying premiums and collects the death benefit. These transactions used to be called viatical settlements. They were especially ghoulish because early investors were generally small companies that offered big discounts from the death benefit to buy policies from AIDS patients, who weren't expected to last long and desperately needed cash for medical bills. (Some investors lost a lot of money when new drug combinations greatly prolonged the life of AIDS sufferers.) Now these deals are called life settlements and are moving to the financial mainstream. Institutions such as Goldman Sachs, JPMorgan and Credit Suisse, as well as hedge funds and German pension funds, are investing in packages of life settlements because the rate of return is not correlated to the stock market, making life settlements a portfolio diversifier. Even some life-insurance companies, such as Phoenix, are becoming investors. How it worksIf a settlement is a great deal for Goldman Sachs, can it be fair to Kenneth and Marie Sahs -- or to you and your family? The answer is partly a matter of perception: Does $125,000 seem like a small fortune to you? Or is the reduced amount a sacrifice? As the life-settlement business grows, it's getting cleaner, and pricing is becoming more consistent. Investors usually prefer people over 65 who are insured for $500,000 or more. If you have a cash-value policy, they'll generally offer far more than you would get by surrendering it to the insurance company -- often two and a half times that amount, says insurance adviser Norman Hood, of Rushville, Ill. Investors will also buy term policies, which have no cash value, if the policy is convertible to a cash-value policy and the premiums make sense to the investor. The size of a settlement varies with the insured person's age, health and life expectancy, but sellers generally get 20% to 30% of the death benefit. The Sahses got 25%, a little more than some other 71-year-olds would get, because Kenneth had heart surgery, shortening his life expectancy. The hunt for this treasure starts with a life-settlement broker, which you can locate online or through a financial adviser. These middlemen gather your health and financial data and solicit settlement offers from investors. One transaction feeds a bunch of mouths, so brokers expect competing offers to vary, sometimes drastically. Insist that the broker get five or six offers and show you all of them, as some states require. Be suspicious if anyone tries to steer you toward one offer, because it may be the deal with the highest commission. You've kissed away a fortune if you discover that the broker took a cut of 30% of the death benefit when 10% of the settlement amount is fair. It is getting easier to assess life-settlement offers. Some institutional investors have banded together to create disclosure forms and other standards as they try to drive out smaller middlemen and other investors. Some independent insurance analysts and agents will estimate what your policy is worth for a flat fee, such as $1,000 or $2,000. |
