Replacements

  • Agency Problems: Policy Replacements
  • A. What information is available on the extent of policy replacement abuses?
    • What steps have individual companies taken to control replacements of existing policies?
    • What procedures have companies adopted to meet the several state regulations regarding replacements?

1961 - SOA - Agency Problems: Policy Replacements, Society of Actuaries - 11p

  • Historically, companies were reluctant to replace life insurance because they might be in violation of the "twisting" laws.
    • Times have changed.
  • In 1969, the National Association of Insurance commissioners developed the 1970 Model Life Insurance Replacement Regulation.
    • This removed most of the "twisting" fears. 

--  William T. Tozer, ACLI

1981 - SOA - Individual Life Insurance Cost Disclosure Issues, Society of Actuaries - 22p

  • Policyholder 1;  I'm dropping my whole life policy with your company and replacing it with company x's universal life policy.
  • Agent 1:  Universal life is not right for you, and I recommend retaining your present policy.
  • Policyholder 2:  I'm dropping my whole life policy with your company and replacing it with company x's universal life policy.
  • Agent 2:  Universal life is not right for you, and I recommend retaining your present policy. -- (Sounds familiar, so far!)
    • But if universal life is what you really want, I will sell you our company's product.

--  Harold Leff, Actuary with the Metropolitan

1983 - SOA - Universal Life (RSA83V9N212), Society of Actuaries - 24p

  • ....a panel of Charles T. P. Galloway, Prof. Joseph M. Belth and Gerald A. Fryer addressed these questions:
    • Can a policyholder reasonably expect to be advised by his company or his agent when to “select” against his company either by surrender and reissue or by replacement with another company?
    • Do the policyholders of a mutual company have more “rights” in this respect?
    • Are nonguaranteed cash value products capable of being sold?
    • Can we explain to our agents or policyholders why asset values fluctuate when we compete against Canada Savings Bonds?

1983 09 - SOA - The Actuary - Replacements Discussed at Canadian Institute, by Michael B. McGuinness, Society of Actuaries - 2p

  • Other companies have come to conclusions that they are better off replacing their existing blocks with universal life.
    • They claim that the profits are better by doing it.
  • In our case, it is a matter of determining the best approach to use without aggressively replacing our own business.

--  Gary P. Monnin, American Founders

1982 - SOA - Universal Life (rsa82v8n111), Society of Actuaries - 14p

  • Life Insurance and Annuities Replacement Model Regulation (MDL-613) 
  • 1981 1001 - NAIC -  Report by the Task force on Life Insurance Replacement
  • 1982-1, NAIC Proceedings - NAIC - Life Insurance Replacement Regulations

  • NAIC - Replacement Issues Subgroup 

    • 1996-2, NAIC Proceedings

      • Included is a report from the Replacement Issues Subgroup which is working on a survey of life insurers replacement practices.

    • 1996-3v2

    • 2000-1

Sat, Apr 30, 1983 – Page 8B · Florida Today (Cocoa, Florida) · Newspapers.com

  • A. What recent studies have been made to determine the reasons given by policyholders for making policy loans, for changing to lower premium plans, and for terminating life insurance policies?
    • To what extent has cash value life insurance been replaced by term insurance?
  • B. How effective in developing information has been the question in the application form relating to the applicant's intention to replace existing insurance?
    • Would the question be more effective if it were asked on a form apart from the application?
  • C. Have state regulations been effective in controlling replacements?

1962 - SOA - Replacements, Society of Actuaries - 12p

  • 6. Other matters submitted for our consideration:
    • (a) Mr. Bruce E. Shepherd, Executive Vice President, Life Insurance Association of America, presented a resolution to the committee recommending that policyholders should not surrender or lapse an existing policy of permanent life insurance and replace it with new life insurance.
    • A copy of the resolution is attached. (p517)

1961-2, NAIC Proceedings

  • Another recent marketplace phenomenon has been a sharp increase in replacement activity, with indications that perhaps half of all lapses involve replacement situations.
    • The revised NAIC Life Insurance Replacement Model Regulation adopted in 1978 is based on a recognition that a replacement is not necessarily disadvantageous to a policyholder, i.e., some replacements are well-justified and definitely in the consumer's interest.
  • One can see the obvious conflict between a company trying to maintain good persistency, which would mean combating replacement activity, and trying to promote the policyholder's best interest, which sometimes would mean not resisting a replacement.
    • The higher the volume of replacements, the more serious would be the company's dilemma.

1982-2, NAIC Proceedings - Statement on Behalf of the American Council of Life Insurance to the NAIC (A) Committee's Manipulation, Lapsation, Dividend Practices and Annuity Disclosure Task Force-  June 8, 1982 - (p524-526)

  • A long-continuing problem to which life insurance actuaries have given too little attention is that of the replacement of one life insurance policy by another.
    • A recent LIMRA release, quoting some of the remarks at a LIMRA Agency Management Conference, suggests that the industry has been rife with replacements for more than half a decacle, and that new products have become vehicles for replacement rather than generators of legitimate new sales.
  • ...........
  • One of the technical problems, then, is to devise some approach to the separation of the “good” replacements from the “bad”. This one will not be easy.
  • ...........
  • Although the replacement problem is not one to which typical actuarial techniques can be readily applied, it is an important problem, and certainly within the general scope of the actuary’s expertise.
    • We suggest that actuaries, and not only supervisory actuaries, take an active role.
    • If home office product development actuaries don’t apply themselves to this matter, who will?

--  Charles Trowbridge, Editor

1987 05 - SOA - The Actuary - 2p

  • Senator Howard METZENBAUM (D-OH): Mr. (James) Hunt, you made a statement that concerns me greatly.
    • You said in the 1980's, replacement life insurance policies began to proliferate.
    • Insurance companies are encouraging their policyholders to cash in their life insurance to buy new and often less secure products with the proceeds.
  • Why are so many policyholders cashing in their life insurance and buying new products?

1992 0623 - GOV (Senate) - Consumer Disclosure of Insurance, Howard Metzenbaum (D-OH)  ---  [BonkNote]

  • Replacement falls under a broader category of disintermediation.
    • That is, the decline of the life insurance industry as a savings medium.
    • Disintermediation occurs through lapsation, increasing policy loan utilization, the continuing shift towards term insurance as well as a wave of product replacements within the industry itself.
    • It also occurs with a substantial opportunity cost as new savings dollars are being invested in other media.

--  William Britton Jr., Vice President and Principal of the Tillinghast firm

1983 - SOA - Individual Life Insurance, Society of Actuaries - 22p

  • In a June 13, 1978 letter to the NAIC, the ACLI opposed the 20-day "cooling-off" period option on the following ground:
    • Once a replacement sale has been consummated and the existing policy, insurer or agent have been discredited in the eyes of the policyholder, a reversal of that action will be extremely difficult, even if replacement is shown to be disadvantageous to the policyholder.125

1979 0710 and 1017 - GOV (Senate) - FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   ---  [BonkNote]  ---   [PDF-592p]

  • We designed commission rules that anticipated a relatively large number of rollovers of existing policies;.
    • ...full commissions are paid provided the new Universal Life face amount is at least two times the face amount of the replaced policy.

--   Phillip B. Norton, not a member of the Society, is Vice President of The Lincoln National Life Insurance Company

1986 - SOA - Individual Life Insurance Retention and Replacement Strategies, Society of Actuaries - 24p

  • I suggest that a prescribed form or method of making cost comparisons in replacement situations is probably unsound for several reasons.
    • For one thing, there is a great variety of fact situations in actual replacement cases, and it is unlikely that any prescribed form or method of comparison will result in a proper disclosure in all such fact situations.
    • Again, proposed replacement policies are often on a different plan of insurance.
    • The proposed replacement policy is usually on a lowerpremium form and usually emphasizes term insurance more than the original policy.
  • While it is possible to make some sort of cost comparison in these cases on the basis of cost in a given year per $1,000 of net protection, such comparisons apparently can be misleading in some cases when the original policy is an endowment or retirement income policy or a limited payment policy.

--  Walter Young

1969 - SOA - Life Net Cost Comparisons, Society of Actuaries - 34p