New taxation rules slow down life insurance product introductions in 2017.
As the end of the year arrives and, with it, the new taxation rules for life insurance, we are starting to receive information on the new life insurance products.
The reasons for the carriers’ slow introduction of new products:
#1. New life insurance tax rules (effective January 1, 2017) were introduced in 2016 to reflect current mortality rates and heightened requirements by the regulators for standardization across insurers and products. These rules replace the current and more favourable tax rules, and have created a tremendous amount of work for insurers and the industry as a whole.
#2. Insurers have been busy dealing with the impact of the new rules which include new administration processes for grandfathering policies and analyses of product line-ups to best address the impact on premiums and products related to the tax rule changes.
#3. The new tax rules create higher costs for the insurance companies. The early news indicates premium adjustment increases are likely.
A state of flux
The product most affected by the new tax rules is a level cost of insurance, universal life policy. With companies announcing price changes in the range of 0% to 30%, we can say with certainty that things are in a state of flux. An insurer attempting to introduce a 30% rate increase has a very unappealing and possibly unsaleable policy, while a 0% rate of increase results in the policy being unprofitable and unsustainable. Read more about the ‘big hit’ universal life insurance is taking as a result of the new rules.
We’re going to see a staging of product introductions given the sheer amount of work that the insurance companies currently face. Introducing a minimal increase might be a measure to keep or increase market share in advance of a new product offering. By contrast, a significant increase is likely a short-term reaction to the rule changes until a better product can be introduced.
Premium to insurance benefit is the true measure
For corporate-owned policies, the analysis of premium to insurance benefit, including capital dividend account (CDA) credits, is the ultimate measure of policy performance. We’ll be completing these analyses on behalf of our clients and as more information becomes available.
Stay tuned. A lot of changes are still to come and it will take time to understand the new life insurance landscape.
For more information on life insurance products, including universal life and level cost products click here.