Mid-Year 2022 Capital Markets Update

Link: https://content.naic.org/sites/default/files/capital-markets-special-reports-mid-year-2022-update.pdf

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Excerpt:

The shape of the Treasury yield curve generally provides insight into the market’s expectations for
interest rates, as well as economic activity. As of June, the yield curve has shifted higher and flattened
compared to the beginning of the year and the last year. The Federal Reserve’s recent aggressive actions
have resulted in the higher Treasury rates and a flattening of the yield curve, as many investors believe
higher rates will push the U.S. economy into a recession. The yield curve also inverted briefly in midJune, which market participants view as a recession signal.

As of year-end 2021, U.S. insurers had exposure to about $316.3 billion in U.S. government bonds across
various maturities, or about 6% of total cash and invested assets. This was an increase from $280.6
billion at year-end 2020, but it was unchanged as a percentage of total cash and invested assets.

Author(s): Jennifer Johnson and Michele Wong

Publication Date: 23 June 2022

Publication Site: NAIC Capital Markets Special Report

Accelerated Death Benefit Rider Financing Approaches

Link: https://www.soa.org/sections/product-dev/product-dev-newsletter/2022/june/pm-2022-06-scholz-eaton/

Excerpt:

Living benefit riders to life insurance policies (also known as ‘combo’ or ‘hybrid’ policies) have become a core component of life insurance sales strategy. LIMRA reported that in 2020 “Combination products represented 24 percent of life insurance sales based on total premium.”[1] Concurrently, the long-term care insurance (LTCI) industry reached an inflection point when more LTCI (and chronic illness) benefits were sold through hybrid products than from standalone LTCI coverage.

On the spectrum of life and LTCI hybrid policies, the richest of these provide coverage of LTCI first through accelerating the policy’s death benefit, and then by providing extended LTCI benefits for many more years. There are a handful of individual and worksite insurers who sell these rich hybrid policies. On the other end of this spectrum are acceleration-only riders to life insurance policies. These riders provide policyholders the opportunity to receive a portion of the policy’s death benefit in advance, under certain conditions. Some of these riders do not cover qualified LTCI, but instead cover ‘chronic illness,’ which has a similar benefit trigger but is not formally LTCI.

This article outlines industry practice and consideration for pricing these acceleration-only policies. The National Association of Insurance Commissioners (NAIC) Model Regulation #620 addresses accelerated death benefit riders to life insurance policies.[2] Model Regulation #620 outlines three financing methods for accelerated death benefit riders which we describe in this article. The Interstate Insurance Product Regulation Commission (the IIPRC, or the “Compact”) adopted standards for some of these riders in the Additional Standards for Accelerated Death Benefits (IIPRC-L-08-LB-I-AD-3).[3] For companies filing chronic illness, critical illness, and terminal illness products in the Compact, these standards define—among other items—the form and actuarial submission requirements and benefit design options for accelerated death benefit riders. If a company is filing an acceleration rider for a qualified LTCI benefit, that product would be subject to the IIPRC individual LTC insurance standards.

Author(s): Stephanie Scholz and Robert Eaton

Publication Date: June 2022

Publication Site: Product Matters!, SOA

Life Insurance Has an Inclusivity Problem

Link: https://www.thinkadvisor.com/2022/06/10/life-insurance-has-an-inclusivity-problem/

Excerpt:

Modern underwriting approaches and distribution methods, often spearheaded by insurtech companies, unlock unique, data-driven insights that enable the industry to understand who they’re serving well — and where they fall short.

The industry can use these insights to adopt a more personalized, progressive approach to product design, underwriting, and distribution to reach specific populations with coverage options and pricing that suits their unique needs.

For the LGBTQ+ community, historical rules and underwriting approaches around mental health could make coverage unattainable or unaffordable.

For example, while our survey didn’t ask respondents about treatment for mental health, the cost of health care in general was a primary concern for nearly 70% of respondents.

A study published in the National Library of Medicine found that LGBTQ+ people used mental health services at 2.5 times higher rates than heterosexual or cisgender individuals.

Additionally, studies have found that they are two and a half times more likely to experience depression, anxiety, and substance abuse — items that are all considered in the underwriting process for life insurance.

Since many in the LGBTQ+ community struggle with mental health concerns, we must find better ways to understand the situation and evaluate the risk holistically.

Author(s): Jeremy Bill

Publication Date: 10 Jun 2022

Publication Site: Think Advisor

Was ‘The Staircase’ murder really about life insurance?

Link: https://www.policygenius.com/life-insurance/news/staircase-michael-peterson/

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It’s been 21 years since novelist Michael Peterson was on trial for the murder of his wife, Kathleen, but the case is still capturing the public’s attention—most recently in an HBO Max series, “The Staircase.”

….

The case also involved the potential for a large life insurance payout. Kathleen had a $1.4 million life insurance policy, which was due to be paid to Michael in the event of her death. Prosecutors said Peterson was hoping to use the payout to address his debt [1] , including $143,000 in credit card debt.

…..

Peterson signed away any claim to the life insurance proceeds during the trial. However, because of the slayer rule, Peterson wouldn’t have been able to collect any money. Under the slayer rule, anyone suspected of murder or plotting a murder is prevented from benefiting from the dead person’s life insurance policy. Instead, Kathleen’s biological daughter, Caitlin Atwater, and her daughter’s father, Fred Atwater, received the money. [2]

In the scope of insurance fraud, life insurance murders aren’t a huge occurrence but they do happen, says Matthew J. Smith, executive director of the Coalition Against Insurance Fraud. For instance, in 2017, Joaquin Shadow Rams Sr., was convicted of killing his 15-month-old son for insurance money. Rams had taken out a $500,000 life insurance policy on the boy soon after he was born, which Smith says, should have been a red flag. 

Author(s): Lisa Rabasca Roepe

Publication Date: accessed 18 June 2022

Publication Site: Policygenius

5 Ways the New Stock Market Rollercoaster Could Affect Life Insurers

Link: https://www.thinkadvisor.com/2022/06/16/5-ways-the-new-stock-market-rollercoaster-could-affect-life-insurers/

Excerpt:

1. Clients could swarm on life and annuity products with benefits guarantees like ants on a candy bar that fell under the picnic table.

Sales of products such as non-variable indexed annuities and non-variable indexed universal life insurance policies soar, as clients flocks to arrangements that can protect them against further drops in stock prices but help them share in gains if and when prices go back up.

Author(s): Allison Bell

Publication Date: 16 June 2022

Publication Site: Think Advisor

South Carolina Withdraws From Interstate Insurance Compact

Link: https://www.thinkadvisor.com/2022/06/13/south-carolina-withdraws-from-interstate-insurance-compact/

Excerpt:

South Carolina — one of the leaders in the effort to create the Interstate Insurance Product Regulation Compact — has withdrawn from the compact because of a conflict over long-term care insurance rate increase application reviews.

Members of the Interstate Insurance Product Regulation Commission, the body that oversees the compact, voted in December 2021 to keep a rule that lets the compact review and approve requests for LTCI rate increases under 15%.

The rule conflicts with a new South Carolina law that requires the director of the South Carolina Department of Insurance or a director designee to review and rule on all LTCI rate filings.

Author(s): Allison Bell

Publication Date: 13 June 2022

Publication Site: Think Advisor

NAIC Rejects Need for Federal Help With Private Equity-Owned Life Insurers

Link: https://www.thinkadvisor.com/2022/06/02/naic-rejects-need-for-federal-help-with-private-equity-owned-life-insurers/

Excerpt:

State regulators are not seeking help from Washington with monitoring those private equity firm owners, the officers of the National Association of Insurance Commissioners wrote in a public letter sent to Brown earlier this week.

Brown is the chairman of the U.S. Senate Banking, Housing and Urban Affairs Committee.

The NAIC officers told Brown that U.S. life insurers have been writing complicated products and using large, complicated investment strategies for some time.

“Our system has experience at assessing and understanding this dynamic through market highs and lows,” the regulators said. “State insurance regulators are fully capable of assessing and managing the risks of these insurers, and there is nothing PE firms add to the playing field that changes this fact.

Author(s): Allison Bell

Publication Date: 2 June 2022

Publication Site: Think Advisor

APPROACHES TO ADDRESS RACIAL BIAS IN FINANCIAL SERVICES: LESSONS FOR THE INSURANCE INDUSTRY

Link: https://www.casact.org/sites/default/files/2022-03/Research-Paper_Approaches-to-Address-Racial-Bias_0.pdf?utm_source=Landing+Page&utm_medium=Website&utm_campaign=RIP+Series

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The goal of this paper is to equip actuaries to proactively participate in
discussions and actions related to potential racial biases in insurance
practices. This paper uses the following definition of racial bias:
Racial bias refers to a system that is inherently skewed along racial lines.
Racial bias can be intentional or unintentional and can be present in the
inputs, design, implementation, interpretation or outcomes of any system.
To support actuaries and the insurance industry in these efforts, this paper
examines issues of racial bias that have impacted four areas of noninsurance financial services — mortgage lending, personal lending,
commercial lending and the underlying credit-scoring systems — as well
as the solutions that have been implemented in these sectors to address
this bias. Actuaries are encouraged to combine this information on
solutions and gaps in other industries with expertise in their practice areas
to determine how, if at all, this information could be applied to identify
potential racial biases impacting insurance or other industries in which
actuaries work.
Parallels can be drawn between the issues noted here in financial services
and those being discussed within the insurance industry. While many
states have long considered race to be a protected class which cannot be
used for insurance business decisions, regulators and consumer groups
have brought forth concerns about potential racial bias implicit in existing
practices or apparent in insurance outcomes. State regulators are taking
individual actions to address potential issues through prohibition of
certain rating factors, and even some insurers are proactively calling for
the industry to move away from using information thought to be
correlated with race. However, this research suggests that government
prohibition of specific practices may not be a silver-bullet solution.
Actuaries can play a key role as the insurance industry develops
approaches to test for, measure and address potential racial bias, and
increase fairness and equality in insurance, while still maintaining riskbased pricing, company competitiveness and solvency.

Author(s): Members of the 2021 CAS Race and Insurance Research Task Force

Publication Date: March 2022

Publication Site: CAS

UNDERSTANDING POTENTIAL INFLUENCES OF RACIAL BIAS ON P&C INSURANCE: FOUR RATING FACTORS EXPLORED

Link: https://www.casact.org/sites/default/files/2022-03/Research-Paper_Understanding_Potential_Influences.pdf?utm_source=III&utm_medium=Issue+Brief&utm_campaign=RIP

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Insurance rating characteristics have come under scrutiny by legislators and
regulators in their efforts to identify and address racial bias in insurance
practices. The goal of this paper is to equip actuaries with the information
needed to proactively participate in industry discussions and actions related
to racial bias and insurance rating factors. This paper uses the following
definition of racial bias:
Racial bias refers to a system that is inherently skewed along racial lines.
Racial bias can be intentional or unintentional and can be present in the
inputs, design, implementation, interpretation, or outcomes of any system.
This paper will examine four commonly used rating factors in personal
lines insurance — credit-based insurance score, geographic location, home
ownership, and motor vehicle records — to understand how the data
underlying insurance pricing models may be impacted by racially biased
policies and practices outside of the system of insurance. Historical issues
like redlining and racial segregation, as well as inconsistent enforcement of
policies and practices contribute to this potential bias. These historical
issues do not necessarily change the validity of the actuarial approach of
evaluating statistical correlation of rating factors to insurance loss overall.
Differences in the way individual insurers build rating models may produce
very different end results for customers. More data and analyses are
needed to understand if and to what extent these specific issues of racial
bias impact insurance outcomes. Actuaries and other readers can combine
this information with their own subject matter expertise to determine if and
how this could impact the systems for which they are responsible, and what
actions, if any, could be taken as a result.

Author(s): Members of the 2021 CAS Race and Insurance Research Task Force

Publication Date: March 2022

Publication Site: CAS

DEFINING DISCRIMINATION IN INSURANCE

Link: https://www.casact.org/sites/default/files/2022-03/Research-Paper_Defining_Discrimination_In_Insurance.pdf?utm_source=III&utm_medium=Issue+Brief&utm_campaign=RIP+Series

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This research paper is designed to introduce various terms used in defining
discrimination by stakeholders in the insurance industry (regulators, consumer
advocacy groups, actuaries and insurers, etc.). The paper defines protected class,
unfair discrimination, proxy discrimination, disproportionate impact, disparate
treatment and disparate impact.
Stakeholders are not always consistent in their definitions of these terms, and
these inconsistencies are highlighted and illustrated in this paper. It is essential to
elucidate key elements and attributes of certain terms as well as conflicting
approaches to defining discrimination in insurance in order to move the industry
discussion forward.
While this paper does not make a judgment on the appropriateness of the
definitions put forth, nor does it promulgate what the definitions should be,
readers will be empowered to understand the components of discrimination terms
used in insurance, as well as be introduced to the potential implications for
insurers.
Actuaries who have a strong foundational knowledge of these terms are likely to
play a key role in informing those who define and refine these terms for insurance
purposes in the future. This paper is not a legal review, and thus discusses terms
and concepts as they are used by insurance stakeholders, rather than what their
ultimate legal definition will be. However, it is important for actuaries to
understand the point of view of various stakeholders, and the potential impact it
could have on actuarial work. As the regulatory and legislative landscape
continues to shift, this brief should be considered a living document, that will
periodically require update.

Author(s): Kudakwashe F. Chibanda, FCAS

Publication Date: March 2022

Publication Site: CAS