For more than two decades any insurer increasing its cost of insurance (COI) rates on its universal life policies was likely to be met with policyholder lawsuits and even, occasionally, regulatory resistance. Until the past several years, these challenges generally have not ended well for the insurers.
By: Stephen Jorden, Steven Kass, Shaunda Patterson-Strachan, Waldemar Pflepsen Jr. Carlton Fields, 24 February 2016
For more than two decades any insurer increasing its cost of insurance (COI) rates on its universal life policies was likely to be met with policyholder lawsuits and even, occasionally, regulatory resistance. Until the past several years, these challenges generally have not ended well for the insurers. Perhaps because recent judicial developments have been more encouraging, in the latter half of 2015 multiple insurers announced COI rate increases on diverse blocks of their universal life policies. Judging from recent news reports, however, discretionary rate adjustments still can be expected to face a gamut of challenges, even though the increased rates do not exceed the guaranteed maximums contained in the affected policies.
These recently reported increases were met with swift opposition. In November, two leading life settlement associations took steps which included sending complaint letters to nine state insurance departments about the rate hikes by four insurers. This concerted effort undoubtedly reflects concern over the impact rate increases might have upon the value of substantial blocks of UL policies that have been amassed by institutional investors. And, as reported earlier this month, the consumer advocacy group – the Consumer Federation of America (CFA) – sent letters to insurance commissioners across the nation regarding the COI rate increases by at least three of these insurers. The CFA position (articulated in a white paper) implores insurance regulators to block rate increases when allegedly used to avoid UL policy guaranteed minimum credited rates of interest, and argues that COI rate increases should be restricted to demonstrated adverse mortality experience.
In tandem, the reactions of the life settlement industry and the CFA illustrate that COI rate increases continue to meet with stiff resistance. Will formal regulatory actions or private party lawsuits in the form of consumer class actions, or individual or coordinated actions by investors, soon follow?
For more than 20 years Carlton Fields has counseled insurers and litigated numerous lawsuits against them regarding adjustments to COI rates and other nonguaranteed elements contained in their life and annuity products.
©2016 Carlton Fields Jorden Burt, P.A. Carlton Fields practices law in California through Carlton Fields Jorden Burt, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.