Newspaper Headlines Highlight Changes in Life Insurance (and TOLI) Business

On October 30th, Voya Financial, a company we wrote about because of a lawsuit filed against it for cost of insurance increases that occurred on universal life policies sold in the past under the Security Life of Denver banner, announced in its third-quarter earnings call it would be ceasing all life insurance sales as of the end of the year.

The company, which was spun out of ING Group, a large financial services firm operating in 40 countries around the world, is not leaving the market because of any litigation.  It is leaving because the permanent life insurance business faces a “sluggish environment” according to a Wall Street Journal report. (1)  The article reports that “since the 1980s, sales of individual life insurance policies have dropped 45%” and in the last few years have been flat.

Voya’s life insurance business the last few years has been bolstered by sales of equity index universal life policies which made up the bulk of Voya’s life sales, a product being packaged by the industry as a retirement supplement vehicle, as the life insurance industry moves from death benefit to retirement funding sales.  As the WSJ article points out many consumers today “are more concerned about outliving their savings than dying prematurely.”

Voya is leaving life insurance sales to focus on pure retirement funding investment management and employee benefit opportunities.  In a Voya press release, Rodney O. Martin, Jr., chairman and CEO, said that going forward Voya would be “focusing on the workplace and institutional clients” and that stopping the sale of new life insurance “aligns with our plans to focus on our higher-growth, higher-return, capital-light businesses: Retirement, Investment Management and Employee Benefits.”  (2)  Voya will continue to administer the current block of in-force business.

The individual life insurance market suffers from an aging workforce and lack of “new blood” to the industry. The average age of a life insurance agent is approximately 60, there are fewer opportunities for new agents to join the industry and according to one survey, the younger generation views life insurance as boring. (3)  As the old guard retires, there may not be enough seasoned agents to replace them.  This is unfortunate, especially in the “higher end” market where wealthy individuals use sophisticated products and strategies in trust-owned life insurance (TOLI) policies and put pressure on a TOLI trustee to be well versed in the changing permanent product landscape.

Ironically, another headline posted the same day points out the new direction of the market.  Ethos, a Silicon Valley start-up that says it can “process life insurance in a matter of minutes” raised $35 million in a funding round that values the firm at “more than $100 million.” According to an industry article, the company “uses data analytics to predict a person’s life expectancy” and this enables it to “cut the time normally taken to apply for life insurance from 10 weeks to 10 minutes.”   The company’s funding has come from big business names like Google and entertainment figures like Jay Z, Robert Downey Jr, and Will Smith.   The company is focused only on term insurance providing 10 to 30 years of coverage for those in the “prime” of their life.

Making life insurance easier to purchase is a great selling point, and many carriers are stepping up with AI and algorithms to speed the underwriting process along, but in the high-end market where life insurance is still used for estate planning, permanent products, not term insurance is typically used.  Term is more of a commodity sale, the only real differentiators being price, carrier stability, and conversion options, so it lends itself to this quick online sales process. Permanent products need consultation, as their nuances and application are harder to explain.

In the TOLI market, there will always be a need for a good advisor to oversee the purchase and management of life insurance.  As we move forward, we think that role will fall more to the TOLI trustee, who more than ever will have to be a specialist in this asset.

  1. Another Insurer to Cease Selling Life Insurance to Individuals, Leslie Scism, Wall Street Journal, October 30, 2018
  2. Voya Financial, Inc. (NYSE: VOYA) today announced financial results for the third quarter of 2018, Business Wire, October 30, 2018
  3. One in four insurance agents will be gone by 2018, Caitlin Bronson,, February 23, 2015.
  4. Google, Accel, and Jay Z invest in life insurance start-up Ethos, valuing it at more than $100 million, Ryan Browne,, October 30, 2018

Lawsuit Filed Against Security Life of Denver for COI Increase Moving Ahead

A class-action lawsuit against Security Life of Denver, initially filed in July of 2018, is moving ahead in Colorado.  The lawsuit alleges policyholders have paid “unlawful and excessive” cost of insurance charges on Strategic Accumulator Universal Life and Life Design Guarantee Universal Life policies subject to increases announced in September of 2015.

The suit contends that there is “no possible justification” for the increase since mortality in the policies “steadily improved” from the time the policies were issued and “less than six months after the 2015 increase” the carrier’s own “Chief Actuary again certified that it expected mortality rates to continue to improve.”

The suit claims “the only possible explanation for Security Life’s conduct is that it is impermissibly using COI rates to manage and increase its own profitability” and that the increase “furthered Security Life’s goal of inducing policy lapses and relieving itself of potential death claims”  Using an increase in COI rates to generate higher profits and lapse rates “violates the terms of the Subject Policies,” according to the suit.

According to the document filed on behalf of the plaintiffs, in 2015, the year of the COI increase, Security Life paid to its parent company, Voya, an “aggregate dividend of $241 million.”  The dividend “marked a 750% increase over the single $32 million dividend that Security Life paid to Voya in 2014.”  The suit alleges “the only way that such a massive dividend could have been triggered is if Security Life was using COI adjustments to increase profitability.”  Security Life, in its rebuttal, admitted to the dividend payment but denied the rest of the allegations.

The carrier also agreed that “premium amounts may impact persistency,” but denied that they used the COI increase to generate a higher than normal lapse rate, as alleged.

The Initial scheduling conference is set for October 17th.

We will be following the lawsuit and will report back with updates.

Transamerica Settles Cost of Insurance Increase Litigation

In 2015 we reported on a Transamerica cost of insurance (COI) increase on a block of universal life policies and illustrated the 40% increase in COI on one policy affected raised the annual carrying costs to maturity for that policy from $36,400 to $81,595.  That cost increase led to three separate class action lawsuits that were consolidated into one claim in November of 2016.

Preliminary approval for the settlement of that consolidated case was filed in the United States District Court in California on October 4th.  Policyholders may opt out, but those who decide to participate will receive part of a $195 million fund set aside for owners of the 70,000 policies affected, including those who terminated their policies. The payout is considered a refund of past overcharges and provides cash credits to in-force policies to supplement cash values. Those with terminated policies will receive a cash payment.

The cost of insurance increase imposed by the carrier will not be reduced going forward, but Transamerica agreed it would not impose any additional increase(s) “on any Class Policy within five (5) years of the Execution Date.”

The carrier also agreed that any increase after the five year period would be “based only on the collective effect of the cost factors assumed when the Policies were originally priced and will not increase the expected future profitability of Policies within the same plan to a level higher than projected based on original policy pricing assumptions, which is intended to ensure that Transamerica does not recover past losses.”

The agreement also includes a clause assuring the carrier would not deny death benefits for policies “based on an alleged lack of insurable interest or misrepresentations made in connection with the original application process.”

Policyholders affected will receive correspondence and if they decide to participate in the settlement will be required to release all claims against the company relating to the rate increases.

The settlement covers only those policies affected by the COI increases that occurred in 2015 and 2016.  A separate case is in progress dealing with the 2017 increase we wrote about in July of that year.  We will provide updates on the additional litigation when further news is available.

California Issues Regulations Concerning Cost of Insurance Increases on Life Insurance

Almost exactly a year ago, we wrote about a new regulation implemented by the New York State Department of Financial Services to “govern life insurance company practices related to increases in the premiums” of life insurance and annuity policies. That regulation required carriers raising rates on policies to notify the department “at least 120 days prior to an adverse change in non-guaranteed elements of an in-force life insurance policy.” Carriers also had to notify consumers “at least 60 days prior to an adverse change in non-guaranteed elements of an in-force life insurance or annuity policy.”

Last week, California Governor Jerry Brown signed into law Assembly Bill 2634, which aims to protect consumers affected by cost increases in their life insurance policies. Current California law requires a carrier to provide notice “upon an increase of premium if that policy provides for premium changes.” The new law, for all policies in effect after April 1, 2019, requires carriers to provide a “summary notice” to a policy owner of a “flexible premium policy” 90 days before any cost of insurance increases. This notice must include:

  • The name and definition of “each nonguaranteed element in the current scale of nonguaranteed elements that is subject to an adverse change.”
  • A statement identifying the current rate or charge, the new rate or charge, and the percentage change.
  • An “explanation” that the “adverse change” is “based on expectations of the future cost of providing the benefits under the policy, and that the adverse change to the current scale of nonguaranteed elements will reduce the accumulation value and may increase the risk of policy lapse based on continued payment of current premiums.”
  • The date the adverse change will take effect.

The carrier will have to notify the insured that they have options, including:

  • Taking no action
  • Paying the additional premium
  • Reducing the face amount of the policy
  • Surrendering the policy
  • Converting the policy (if available)

No mention of a life settlement option was made part of the bill’s requirements.

The bill does require carriers to provide “an inforce illustration of current and future benefits and values whenever the policy is subject to an adverse change in the current scale of nonguaranteed elements” and to alert the insured to call their agent or the carrier’s customer service line if there are questions. The bill also requires the carrier to include a toll-free number and a listing of hours of service.

Whether this type of legislation will spread is unknown. New York and California are known as two of the most aggressive states when dealing with consumer protection and life insurance.

We will keep an eye on related legislation going forward and report back if further states enact similar laws or regulations.

Lawsuit Filed Against Voya Cost of Insurance (COI) Increase

In May of 2016 we reported that the cost of insurance was being raised on a specific block of approximately 18 universal life products originally issued by Aetna Life Insurance and Annuity Company (now Voya Retirement Insurance and Annuity Company.) Lincoln Financial Group was the administrative agent and reinsurer on the policies.   We were unsure of the total number of policies affected.

Last week (August 15th) a Motion for Certification was filed in the United States District Court – Southern District of New York  questioning whether Voya “breached the standardized, form insurance policies owned by all members of the proposed Class by raising cost of insurance (“COI”) rates, and whether Aetna’s reinsurer, Lincoln, was unjustly enriched as a result.”

The heavily redacted document points out that any change in COI on the policies in question were to be based on “estimates for future cost factors,” and be applied across an entire class on a “uniform or nondiscriminatory” basis. The Complainant stated that they will present evidence “Aetna breached these contractual provisions, and that Lincoln was unjustly enriched.”

According to the court document,  the New York Department of Financial “agreed that the rate hike was illegal” and the carriers “abandoned the increase in New York, but proceeded to impose the same illegal overcharges” on policies outside the state, “even though those policies have the same terms as those in New York, and there is no actuarial or other basis whatsoever to justify discriminating between New York and non-New York policy owners or insureds.”

The Plaintiffs contend that the increase was “unlawfully based on Lincoln’s estimates of Lincoln’s future profits, rather than Aetna’s estimates of its future costs,” as is required in the policy contract and “Aetna failed to impose the COI rate hike on a class basis, as each policy requires.”

The court document was filed on behalf of Helen Hanks who purchased a Universal Life 83 (Aeconoflex) policy issued by Aetna and requests that the court certifies “the class defined in the Complaint” and appoints Helen Hanks as Class Representative.

As this case proceeds we will keep you posted.

ITM TwentyFirst Alert: Lawsuit Filed Against John Hancock for COI Increase

In February of 2017 we reported John Hancock had placed restrictions on certain inforce illustrations. At that time, we mentioned this was a possible precursor to a cost of insurance increase.  A year later the carrier notified the New York Department of Financial Services that it would be raising the cost of insurance (COI) on some Performance UL policies. Last month we reported the first customer announcements for the increase arrived at our NYC office.  Just as COI increases seem to follow inforce illustration limitations, class action lawsuits seem to follow COI increases.

Last week (June 5th), a lawsuit was filed in the Southern District of New York against John Hancock for “an unlawful and excessive cost of insurance (“COI”) increase” on “approximately 1,500” Performance UL policies.

The lawsuit details policy COI increases of 17%-71%, in line our with analysts’ findings.  The lawsuit alleges that increases up to 71% are “far beyond what the enumerated factors in the policy could justify.”

Letters announcing the increase blamed it on “expectations of future mortality and lapse experience,” but according to the suit “mortality expectations have continued to improve” and lapse experience, though “deteriorating…cannot justify any increase, much less one of this size.”  In addition, the recent tax cuts, “should have led to lower COI rates” since John Hancock recently announced, “the U.S. tax cuts will save it $240 million per year going forward.”

According to the filing, the carrier “told regulators as recently as February 2016 that its expectations did not warrant any change in projected COI rates,” and the lawsuit alleges John Hancock “admits” the increase was “driven” by the carriers’ goal to raise or meet its “profit objectives,” which is “not one of the enumerated factors a COI rate increase can be based on.”

The suit asserts the increase is “discriminatory and non-uniform” and “there does not appear to be any actuarial justification for the differences in the amount of the COI increase between policyholders.” For example, “the increase was applied to a standard male insured with issue age 73, but not to a standard male insured with issue age 65, and there is no actuarial reason to treat those two policies in such wildly disparate manners.”

The lawsuit calls for, among other things; compensatory damages and restitution and the “reinstatement of any policy that was surrendered or terminated following Defendants’ breach and unlawful conduct.”  The filing also calls for the court to prohibit John Hancock from collecting “the unlawfully and unfairly increased COI amounts.”

We have been analyzing the nature and amount of the COI increase and will be reporting back shortly on our findings.

A copy of the lawsuit can be obtained by emailing

First John Hancock Cost of Insurance (COI) Increase Letters Arrive

In February of 2017 we reported John Hancock had placed limitations on inforce ledgers for certain Performance UL policies.  A year later, in February of this year, we wrote that The Life Settlements Report, a trade publication, reported that John Hancock had voluntarily notified the state of New York that it would be raising the cost of insurance (COI) on 1,700 Performance UL policies.

Today, our New York City office received the first official COI increase announcement from the carrier.  The letter, dated May 7th, noted that the carriers’ “expectation of future experience has changed” and for that policy, the cost increase would occur on the next policy anniversary date.

The carrier provided several “options to manage the increase,” including; increasing the premium to keep the current death benefit in force, reducing the death benefit to “keep the current premiums the same,” or maintaining both “current death benefit and premium payment,” though if that option were chosen, “your policy will not remain inforce as originally projected.”

The carrier also offered the option to surrender the policy, though they “strongly encourage” policy holders “to consider the value of your policy and the goals you established when you purchased it” before taking that course.

The carrier provided an 800 number to contact “dedicated service representatives” for assistance and “personalized information and illustrations specific to your policy,” and noted they are “committed to working with” policy holders to choose an option that “best meets their needs.”

We are not sure of the size of the COI increase. According to a John Hancock representative contacted by our New York City office, the amount of the increase will vary by policy.   The representative also noted that roughly 4,000 Performance UL policies were evaluated and approximately 1,400 will be affected by the increase, though we cannot officially verify that.

It appears that inforce illustrations for the policies affected will begin to flow in the next few weeks, and as they are received and analyzed we will report back on our findings.