Session 188 IF - Inforce Management: Understanding and Increasing Its Value Moderator: Donna Christine Megregian, FSA, MAAA Presenters: Andy Ferris, FSA, FCA, MAAA Stephanie J. Koch, FSA, MAAA Jennifer L. McGinnis, FSA, CERA, MAAA SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer
Inforce Management: Understanding and Increasing Its Value Moderator: Donna Megregian, FSA, MAAA, RGA Presenters: Andy Ferris, FSA, FCA, MAAA, Deloitte Stephanie Koch, FSA, MAAA, RGA Jennie McGinnis, FSA, CERA, MAAA, Swiss Re 2017 SOA Annual Meeting Session 188
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Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 3
What type of organization do you work for? 1. Direct writer 2. Reinsurer 3. Consultant 4. Government 5. Retired 6. Other 58% 28% 9% 0% 2% 3% 1 2 3 4 5 6
What is your primary area of practice? A. Life B. Annuities C. Health D. Long Term Care E. Retirement / Pension F. Other 72% 19% 1% 4% 0% 4% A. B. C. D. E. F.
Who is responsible for managing your inforce? A. Stand-alone team / department B. A cross-functional committee C. Ad hoc as needed (responsibilities are incorporated into a broader team) D. Variation or combination of the above E. No one (we don t have IFM activities) F. Not applicable (e.g. retired, etc.) 52% 25% 12% 5% 3% 3% A. B. C. D. E. F.
The Value of Inforce Management
IFM Measurement Note: Respondents chose up to 5. Only the top 10 results are displayed. Source: RGA Life Insurance Active In-Force Management Survey 8
Common IFM Activities Analytical Output Retention analysis Initiative theme Strategic lever Yes Sales and customer management initiatives 1 2 3 Persistency programs Cross/Up sell programs Education and/or incentives Product and financial initiatives 4 5 Reinsurance Adjust non-guarantees In-force block Strategic value? 6 7 Investment restructuring, hedging Claims management Ensure accuracy and transparency No Sales and customer management initiatives 8 9 Exchange programs Buyout programs 1. Outsource administration can also be used if in-force business is strategically valuable Operational initiatives 10 11 Outsource ongoing admin 1 Sell block of business
IFM Priorities Source: RGA Life Insurance Active In-Force Management Survey 10
Sales to Inforce Customers and Customer Management
Of the following businesses, how many have ever proactively contacted you, in their efforts to generate additional sales? Banks offers for credit cards, home equity loans, cash out refinancing, or any related offers Online Retailers (Amazon, Peapod, etc.) customized product recommendations based past purchases Subscriptions (digital or printed) offer to renew/upgrade subscription, or purchase related subscription Cable TV / Internet Provider to expand channel line up or internet speed A. 25% B. 50% 73% C. 75% D. 100% 5% 4% 18% A. B. C. D.
Has your insurance company employer or client ever proactively approached any portion of the inforce block in an effort to generate additional sales? (cross-sell, up-sell, product upgrade, etc.) A. Yes, on a frequent and/or regular basis B. Yes, but on a rare and/or ad-hoc basis C. No D. Not applicable / Don t know 46% 25% 18% 11% A. B. C. D.
For those who answered no, why not? A. Cross-sell / up-sell is not worth the effort. Our traditional new business activities are more efficient. B. The producer owns the relationship with the policyholder, and we seek not to disrupt that C. Potentially too annoying and/or invasive to existing customers D. Don t know and/or maybe we should E. Other, or not applicable, or already answered yes to the prior question 46% 18% 17% 11% 7% A. B. C. D. E.
Product Management
Determining when and how to take action Monitor performance Review contract language Assess quality of data, models and assumptions Identify available options Involve the organization Consider timing 17
Has your company or client modified post-level term premiums? A. Yes, for new business only B. Yes, for inforce only C. Yes, for new business and inforce D. No E. Not applicable / Don t know 11% 4% 30% 24% 32% A. B. C. D. E.
For example, the 20th ranked Compulife premium in 2005 PLT value increases from $3,100 to $8,200 per million of NAAR, which is an increase of $5,100 (165%). Assuming $10B of NAAR immediately prior to the PLT, this translates to $51M of PV of Net CFs! Post-Level Term Management The diagram below shows the present value of net cash flows using an 8% discount over a 15-year post-level period projection for a current typical post-level premium structure compared to an alternative
Research on PLT management U.S. Lapse Modeling for the Post-Level Period A Practical Application of Predictive Modeling 2014 Post Level Term Lapse & Mortality Report Modeling of Policyholder Behavior for Life Insurance and Annuity Products A Survey and Literature Review 2013 Survey of Lapse and Mortality Experience Lapse and Mortality Experience of Post-Level Premium Period Term Plans Report on the Survey of Post-Level Premium Period Lapse and Mortality Assumptions for Level Premium Term Plans Post Level Premium Shock Lapse Experience Survey Canada Lapse Experience Study for 10-Year Term Insurance 20
Implementing PLT changes Project Management Size & importance, cross-functional teams, resource allocation, and communication Actuarial Regulatory & Compliance Reinsurance Service / Call Center IT & Admin Systems Analysis of current situation and identification of better solutions Review policy form language and understand filing requirements, which may vary by state Reinsurers should be your partner, but you also need to understand your rights and their situation Customer communication can play a key role in shaping behavior System functionality, rate update, validation, and testing 21
Has your company or client modified dividends, interest credited rates, and/or index cap rates in the last 5 years? A. Yes B. No C. Not applicable / Don t know 76% 18% 5% A. B. C.
Aside from dividends, interest credited rates, index cap rates and PLT premiums, has your company or client modified any non-guaranteed elements in the last 5 years? A. Yes B. No C. Not applicable / Don t know 42% 39% 18% A. B. C.
Permanent product management While management of certain non-guaranteed elements is well established (e.g. interest credited rates), management of other elements (e.g. COI charges) has not been as common historically Policy language is a key consideration Which pricing factors may be considered How they may be considered Other limitations 24
Other matters
Additional considerations Captives, Letters of Credit, etc. Reinsurers Solutions: Structured deals, Disposal, Liability trades Contract terms: Material changes, recapture and rate change options, E&O considerations Regulations e.g. NY DFS Regulation 210 26
Professionalism considerations ASOP 2: Nonguaranteed Charges or Benefits for Life Insurance Policies and Annuity Contracts ASOP 12: Risk Classification (for All Practice Areas) ASOP 15: Dividends for Individual Participating Life Insurance, Annuities, and Disability Insurance ASOP 24: Compliance with the NAIC Life Insurance Illustrations Model Regulation ASOP 33: Actuarial Responsibilities with Respect to Closed Blocks in Mutual Life Insurance Company Conversions 27
Common Challenges Source: RGA Life Insurance Active In-Force Management Survey 28
Would you be interested in networking with other IFM professionals? A. Yes, through a formal structure (e.g. working group, sub-section, section) B. Yes, through an informal structure (e.g. SOA Engage, LinkedIn, Listserv) 52% C. No, my IFM networking needs are met through already existing channels 26% 6% 16% D. Not interested not applicable A. B. C. D.
Q&A