NCOIL Tables Model Legislation Efforts to Deal with Cost of Insurance Increases in Life Insurance

NCOIL, the National Council of Insurance Legislators, met in Atlanta last weekend to discuss, among other things, “legislative solutions to unjustified premium increases (1).”

NCOIL is an organization made up of state legislators interested in insurance and financial matters, many of whom serve on related committees in their home states. The goal of the organization is to inform state legislators by creating a venue for interaction and education across state lines. The organization meets three times a year in open sessions that allow the legislators to hear from consumers, industry executives, and regulators.

The organization develops model laws that can be adopted on a state-by-state basis, and part of its published goal is to “preserve the state jurisdiction over insurance” and “speak out on Congressional initiatives that attempt to encroach upon state primacy in overseeing insurance.” The organization provides a needed open setting for the interaction of ideas designed to “improve the quality of insurance regulation (2).”

In its November 2017 meeting, Assemblymember Pamela Hunter of New York, brought up Insurance Regulation 210, a New York regulation we wrote about back in September of 2017. The regulation requires carriers raising expenses or cost of insurance in life and annuity policies to notify the New York State Department of Financial Services at least 120 days prior to “an adverse change in non-guaranteed elements” and to notify consumers within 60 days (3).   The leadership of NCOIL decided to continue the conversation Hunter started at their spring meeting, and on March 3rd, the Life Insurance & Financial Planning Committee of NCOIL met.

Winter storm Riley kept Ms. Hunter from attending the session, which was chaired by Representative Deborah Ferguson, who serves on the House Insurance and Commerce Committee in her home state of Arkansas.

The session opened with a statement by Darwin Bayston of The Life Settlement Association who pointed out there are 142 million life insurance policies in force with $12.3 trillion of death benefit, and stated that the current cost of insurance increases are harming many consumers. Darwin focused on the older population of insureds who had paid premiums for many years only to find that cost increases now made their policies unaffordable.

In my testimony I went over two of the many cases that we have reviewed for trustees at ITM TwentyFirst, where well over $400 million of trust owned life insurance (TOLI) death benefit administered on our Managed Service platform has been affected by the cost increases. I highlighted the problem of trustees, who have a fiduciary responsibility to maximize the asset in the trust, being forced to make decisions that deliver much less benefit to the trust than was expected. I also reviewed the many comments I had received from the public, including advisors who expressed dismay that their clients were subject to cost increases of 150 to 200 percent and consumers who cancelled policies because of COI increases and felt they had been “scammed” – their words, not mine.

Steven Sklaver, an attorney at Susman Godfrey LLP spoke next. Sklaver currently has multiple cases filed against carriers who have raised COI on policies and was “handcuffed” in his presentation as a result. However, he did contrast what is occurring in New York state versus the rest of the country, because of the New York regulation, by calling attention to a situation where a carrier who raised rates elsewhere decided not to raise rates in New York. In his testimony, he questioned whether the carriers could be raising rates across an entire class, as required, if NY state insureds were left out. He also pointed out an issue we have seen at ITM TwentyFirst – carriers not providing in force illustrations on policies in the grace period, a major burden for those of us attempting to help policyholders manage a distressed policy.

Kate Kiernan, Vice President, Chief Counsel and Deputy at the American Council of Life Insurers, spoke for the council, expressing their belief that there was no need for any new regulations concerning cost of insurance increases, either in New York or any other states.

Members of the committee had several inquiries. Representative George Keiser from North Dakota asked Mr. Sklaver several pointed questions, and disputed Steven’s assertion that the carriers were not raising rates across an entire class as required, if New York were left out of the increases.

The chairwoman, Representative Deborah Ferguson, asked me if there was anything in a sales illustration that might alert a consumer to a cost of insurance increase in the future. I informed her that the illustration is not the contract, and in fact, a poor tool to explain the policy. Though the illustration has language that indicates all assumptions could change, there is nothing in the illustration that can predict future changes in the policy.

Senator Bob Hackett from Ohio, a veteran of the financial services industry, opined that cost of insurance increases center more around tracking the policy with in force ledgers than the sales illustration, noting that he reviews the in force ledgers with his clients.  I agreed, but explained that though the cost of insurance in a policy will increase as we age, the cost of insurance increases that were the topic of discussion were beyond the natural rise, and resulted in carrying costs on policies to double or even triple overnight.

Our session, the first of the day, was brought to a halt by the vice chairman, Representative Joe Hoppe of Minnesota, who stated that he thought they should wait to see how it would “play out” in the court system before making the decision to move ahead. With a tap of the gavel, Ms. Ferguson brought the meeting to an end with the committee agreeing to not move forward to develop a model act – at least not now.

We have written often in the past about the cost of insurance increases we have seen in life insurance, including at least one article outlining some possible causes. Over the next year or so as the courts work through the various cases brought against the carriers and market interest rates adjust from the abnormally low rates of the last decade, the story will evolve. We will continue to follow up.


  1. NCOIL to Discuss Problems Facing Life Insurance Premium Increases, NCOIL News Release, January 23, 2018
  2. NCOIL website,
  3. NY State Department of Financial Services, 11 NYCRR 48, (Insurance Regulation 210)

TRUSTEE ALERT- Why We Started An Affiliated Trust Owned Life Insurance (TOLI) Trust Company

On November 21, 2017, ITM TwentyFirst received a South Dakota charter for an affiliated trust company, the Life Insurance Trust Company, the first trust company focused solely on life insurance trusts.  On December 22, 2017 President Trump signed into law The Tax Cuts and Jobs Act with sweeping tax changes that included a doubling of the federal estate tax exemption amount to just over $11 million, lowering the number of estates affected annually by the federal estate tax from 5,000 to 1,700, less than 0.1 percent of all deaths (1).  Yet, we are extremely bullish about the prospects for our affiliated company.

The federal estate tax is fluid. It has been repealed four times only to reappear again.  If less than 100,000 voters had changed their votes in the last presidential election we could be looking at a $3.5 million exemption and a top estate tax rate of 65% (2).  News reports focused on the $1.7 trillion the tax bill will add to the federal deficit (3), but this is on top of the current $20 trillion dollars in debt ($170,000 per taxpayer) (4), and the additional $10 trillion that was already projected to be added to the debt over the next 10 years (5).

That much debt should raise interest costs. Interestingly, since 2008, while $8.4 trillion was added to the federal government debt, federal net interest costs incurred were near the lowest levels in 50 years (6).  That is going to change as the historically low interest rates rise.  It is projected that net interest costs will more than double in real terms and as a share of the economy over the next decade (7).  More government revenue will be needed, and if the political climate changes, the estate tax will be a target.  “We think there will be times when Congress is looking for new revenue sources, and this is a fairly easy one,” said one executive with a group that is a proponent of the estate tax (8).

But even if the political climate and federal estate tax situation does not deviate from the current, post Tax Cuts and Jobs Act climate, our affiliated trust company is still primed for success.

Life insurance, is at best, a cumbersome asset.  And ramping up internal resources – human and capital – to successfully manage an asset fraught with liability is a tougher business decision for financial institutions to make these days.  Some are looking for an opportunity to offload their life insurance trusts to a firm that will be a partner, not a competitor, and that is the business model that has been created at the Life Insurance Trust Company.  Managing life insurance trusts well without interest in the other assets a client may have, creates the perfect win/win scenario.  In some situations, a firm may wish to offload only those trusts with grantors that have no other relationship with the institution, so called orphan or stand-alone accounts.  The new company stands ready to accept only those trusts, leaving a more profitable ILIT business line.  For each situation, a tailored approach can be created.

Compliance managers at accounting and law firms whose members and partners have accepted the TOLI trustee role for clients are beginning to understand that the unchecked liability this creates is simply unacceptable with an asset such as life insurance.  A specialized trust company with robust individual and portfolio reporting provides a built-in tracking mechanism found nowhere else.

Financial and life insurance advisors looking for a home for life insurance trusts created over the years will find the advantages of this new trust company hard to pass up.  The life insurance experts servicing the Life Insurance Trust Company are advisor-friendly, and though the trust company bears a fiduciary duty solely to the beneficiary, its professionals understand that the success of the policy comes partly from working with the advisors in the field.  Another plus – advisors are provided with one of the most complete annual policy reviews available anywhere, alleviating them of this back-office expense, a welcome benefit for those advisors looking to downsize or reduce office expenses.

Life insurance trusts have many benefits besides tax advantages, including protection from creditors and the ability to control the passing of wealth to beneficiaries, important in those situations where spendthrift, mental illness or addiction issues may play a role.  But in the last few years, we have seen that the management of this asset may best be handled by an organization with specialized resources and talents.

For those who would like to learn more about the Life Insurance Trust Company, a special one hour webinar is planned for Tuesday, January 30th, 2018 at 2PM eastern.  To register, click here.

For more information about this new trust company, contact Leon Wessels, Director of Business Development, at 605.574.1703, or



  1. Howard Glickman, Tax Policy Center, December 6, 2017,
  2. While President Trump won 290 electoral college votes, 70 electoral college votes were won by less than 1.5% of the vote, including; Wisconsin (10), Pennsylvania (2), Florida (29) and Minnesota (10). Michigan (16) and Vermont (3) were won by less than .4% of the vote.  Clinton proposed a $3.5 million estate tax exemption and a top tax rate of 65%, Hillary Clinton Proposes 65% Top Rate for Estate Tax, Wall Street Journal, Richard Rubin, September 22, 2016
  3. Congressional Budget Office, Estimated Deficits and Debt Under the Chairman’s Amendment in the Nature of a substitute to H.R. 1, the Tax Cuts and Jobs Act,
  4. org, amount as of 1/24/2018
  5. CBO’s January 2017 Budget and Economic Outlook, Committee for a Responsible Federal Budget, January 24, 2017
  6. Policy Basics: Deficits, Debt, and Interest, Center on Budget and Policy Priorities, August 29, 2017,
  7. Congressional Budget Office, The 2016 Long-Term Budget Outlook, July 12, 2016
  8. Death Tax Repeal In 2017?, Ashley Ebeling, Forbes, June 6, 2013.

New York State Issues New Regulations Regarding Cost of Insurance (COI) Increases

In November of last year we reported on a regulation floated 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. The goal was to “protect New Yorkers from unjustified life insurance premium increases.”

This week, the department issued their final regulation. According to a press release announcing the new regulation, the department will be able to review cost of insurance, premium or expense increases in life insurance and annuity policies by requiring carriers to notify the department “at least 120 days prior to an adverse change in non-guaranteed elements of an in-force life insurance policy.” In addition, carriers will be required 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.”

We have previously reported on life insurance policy COI increases and their effect on policy carrying costs. According to New York Financial Services Superintendent Maria T. Vullo, the new regulation “is designed to protect New Yorkers from unfair and inequitable cost increases in in-force policies.” According to the department, New York law, “prohibits life insurers from changing non-guaranteed elements in a discriminatory way for members of the same class of policyholders . . . only certain enumerated factors, which do not include profit, can be considered when seeking to change non-guaranteed elements.”

There are several COI increase lawsuits working their way through the courts that are focused on the legalities regarding how carriers can increase the cost of insurance on a policy, and whether the increases represent a breach in the insurance contact. One case, settled last week, favored the plaintiffs, and one consolidated case was granted permission to move forward earlier this month. The carriers maintain they have the right to raise COI costs in their policies. A Wall Street Journal article on this subject stated, “insurers maintain they are acting in accordance with policy provisions allowing higher charges up to a maximum amount, based on expectations of future policy performance.”

These final regulations were published after the department reviewed comments submitted when the original proposal was announced. It is not known whether other states will follow suit, but that same Wall Street Journal article noted the regulation “could be widely copied by other insurance departments.”

We will report on any updates as they become available. For a copy of the press release and new regulation, email

Lincoln National Consolidated COI Lawsuit Update – The Case Is Moving On

A little over a year ago we posted a blog about a Lincoln Financial cost of insurance (COI) increase on Legend Series Universal Life policies issued between 1999 and 2007 that originated at Jefferson Pilot (Lincoln Financial purchased Jefferson Pilot in 2006).  Earlier this year we reported on a class action lawsuit filed in in the Eastern District of Pennsylvania against Lincoln.  Other lawsuits soon followed, and in May we reported that four suits were combined in the Pennsylvania court into a Consolidated Class Action Complaint.

After the consolidated complaint was filed, Lincoln filed a Motion to Dismiss on June 8th. The Plaintiffs’ response was filed on July 28th, and Lincoln’s reply on August 17th.  On August 22nd the court held oral arguments, and on September 11thJudge Gerald J. Pappert issued a Memorandum in which the court ruled on Lincoln’s Motion to Dismiss, which he denied in part and granted in part.  As you will see, he mostly denied Lincoln’s requests, and the case will move forward.

According to the Memorandum, the policies in question, “give Lincoln discretion to determine the COI rate based on its expectation of future mortality, interest, expenses and lapses.”  The Plaintiffs alleged that Lincoln was attempting to “recoup past losses” with the increases.  The court found that the Plaintiffs “adequately supported” their allegation that Lincoln “subjected the Plaintiff owners to unlawful [cost of insurance] increases” and can proceed “with their contract-based claims.”

According to the Memorandum, Lincoln did “appear to acknowledge” that if they did raise the COI “based on non-enumerated factors, it would constitute a breach of contract.” But the Memorandum goes on to say that Lincoln denies this. The Plaintiffs point to Lincoln statements that show the “COI rate increase was based on impermissible, backward-looking considerations.” For example, they cite a notice from Lincoln that references “nearly a decade of persistently low interest rates, including recent historic lows, and volatile financial markets” and states “in response to the persistent low interest rates, including the recent historic lows (emphasis theirs), there will be pricing increases.”

The Plaintiffs also referenced an interview with the President/CEO of Lincoln Financial Group that occurred around the time of the COI increases in which he said the carrier saw in force pricing as a way to dampen the negative effect of the low interest rate environment.   The court decided that the Plaintiffs’ allegations were “sufficient to state a claim for breach of contract.”

The Plaintiffs contended that “lower investment income,” because of the low interest environment, was not a permissible consideration for a COI increase, and that the higher reinsurance rates that Lincoln referenced as a reason for the increase was not a future expense that the carrier could consider.  The court ruled that the Plaintiffs, “adequately alleged that Lincoln’s admitted consideration of lower investment income and higher reinsurance costs constituted breaches of the Policies terms.”

The Plaintiffs asserted that mortality, which is the “driving factor in setting the COI rate,” had improved since the policies were issued and was expected to continue to improve.  Lincoln responded that “general nationwide mortality improvement does not mean that mortality has improved for insureds of all ages and rate classes and, in any event, is not necessarily consistent with Lincoln’s own mortality assumptions or experience.”  The Plaintiffs claimed the carrier had “filed interrogatories with the National Association of Insurance Commissioners in each year from 2010 to 2014 stating its expectation that mortality will improve in the future.”  The court affirmed that the Plaintiffs had “stated a claim.”

The Plaintiffs claimed Lincoln “breached the policies terms by failing to apply the COI rate increase uniformly across policyholders in the same rate class,” citing rates on one insured “higher when the insured is 98 years old than when she is 99 years old.”  The court wrote that the allegations were “sufficient to state a claim.”

The Plaintiffs claimed the defendants “breached the contract by refusing to provide policyholders with illustrations during the Policy’s grace period.”   After a review of contract language concerning this right, the court wrote that they cannot say that the contract language “is unambiguous or plainly inconsistent with Plaintiffs’ reading at this stage, and Plaintiffs have stated a claim.”

The Plaintiffs argued for a claim of “breach of the implied covenant of good faith and fair dealing” which they said, requires the carrier to “act in a manner that does not frustrate policyholders’ reasonable expectations under the Policies, and—to the extent it has limited discretion to set the COI rates—to exercise that discretion reasonably and in good faith.”  Lincoln countered by saying that claim was “defective” since it was based “on the same facts as the breach of contract claim and therefore duplicative and cannot be adequately alleged that Defendants breached the implied covenant brought as a separate cause of action.”  The court ruled that the Plaintiffs had “adequately alleged that Defendants breached the implied covenant.”

The Plaintiffs requested “relief resolving the parties’ obligations under the Policies, the factors on which Lincoln may base a COI rate increase, the lawfulness of the COI increases and whether the policyholders must continue to pay the allegedly unlawful COI charges.”  Again, Lincoln countered that the claim should be dismissed “because it is duplicative of the breach of contract claim.”  After a review of the facts, the court granted the “Defendants’ Motion with respect to this claim.”

The Plaintiffs contended that Lincoln violated the “consumer protection laws of various states,” including California, North Carolina, Texas, New Jersey, New York, and the court wrote that these claims could move forward.

This outcome ensures that the case will move forward, and the clear majority of the Plaintiffs’ claims will be heard. As the case moves forward we will provide additional updates.  For a copy of the Memorandum, please email

Transamerica Cost Of Insurance (COI) Case Results In Win for Plaintiffs

Less than two weeks ago we reported on an interesting COI increase lawsuit. In that case, DCD Partners v Transamerica Life Insurance Company, a Los Angeles church pastor who enlisted an outside investor to finance life insurance policies providing burial funds for congregants had filed suit, along with the investor, against Transamerica for a 50% COI increase in policies issued to the group. In their lawsuit, the plaintiffs alleged among other things, breach of contract in violation of California law and breach of the covenant of good faith and fair dealing.

On September 13th after a one week trial in the courtroom of Christina A. Snyder, US District Judge in the Central District of California, the jury handed down their verdict.

The Verdict Form asked four questions:

The first, under the heading, Breach of Contract, asked…Did Transamerica breach the insurance policy contract? The jury answered yes.

The second, under the heading, Implied Covenant of Good Faith and Fair Dealing, asked…Did Transamerica breach the covenant of good faith and fair dealing implied in the insurance policy contract? The jury answered yes.

The third, under the heading, Damages, asked…Did DCD suffer any damages caused by the breach of contract or breach of the implied covenant of good faith and fair dealing? The jury answered yes.

The fourth, since the jury said damages were caused, asked…How much damage did DCD suffer? The jury answered $5,608,495.57

The case involved 2,400 policies that were taken out in 2004. The death benefit of each $275,000 policy was split between the investor DCD $225,000, a charity started by the pastor, $35,000 and the insured’s beneficiary, $15,000. According to the Wall Street Journal, $50 million of the potential $660 million in benefits has already been paid out. (1)

While both the church pastor and the investment firm stated they relied on Transamerica reassurances that the chance of future COI increases were remote when purchasing the policies, court documents showed that both were aware that the costs within the policies could increase.

The lawsuit was originally filed in 2015 and alleged that Transamerica “impermissibly used race-based data” when calculating the COI increase as the policies insured members of a majority African American church. Transamerica denied the allegations as “categorically false and offensive.”

The outcome may bode well for plaintiffs in other COI increase cases still being litigated.

  1. Life Insurer Faces Off Against African-American Church in Battle Over Rates, Leslie Scism, The Wall Street Journal, September 1, 2017

WSJ Article Highlights Interesting Cost of Insurance Case

An interesting cost of insurance (COI) increase lawsuit has been playing out over the span of two years in a Los Angeles courtroom.  The case was featured in a Wall Street Journal today as the case is set to go to trial next week.  (1)

The case involves a Los Angeles church pastor and an investment group that financed life insurance policies on his church members.  Reverend Hardwick was the pastor of a predominately African American church who was concerned about the number of uninsured congregants in his flock.  In the 1960s, the pastor, along with a locally prominent, but not yet nationally known attorney by the name of Johnny Cochran, began to devise a program to provide life insurance to parishioners.  The idea finally came to fruition in 2004 when Transamerica issued 2,400 TransValue flexible premium universal life insurance life policies in two pools.

According to the lawsuit, during the negotiation process Reverend Hardwick met with officials of Transamerica and voiced his concerns that the carrier might charge higher rates for his group for the same coverage because his congregants were African American, a process known as red-lining.  The carrier, in written correspondence, assured Reverend Hardwick that the policy to be issued was “the same product that would be available for any similar group that might apply for coverage,” and that, “the charges, benefits and features are exactly the same as we would issue in all states where the policies have been approved.”

According to minutes from the case, the reverend was also concerned about future increases in the cost of insurance. The plaintiffs contend that Transamerica “repeatedly assured Hardwick that it would not raise the Policies’ MDR [monthly reduction rates] at any time in the future.”

In 2009, an investor, DCD Partners, took over the premium payments on the policies.  Each policy was issued with a $275,000 death benefit, with $225,000 to DCD, $35,000 to PIC Trust, a charitable organization run by Reverend Hardwick, and $15,000 to the insured.  Prior to entering the agreement, DCD reached out to Transamerica, and “received information regarding the policies” with Transamerica telling the investor that “it had only increased the cost of insurance once over the previous thirty years.”  DCD “reasonably relied on this representation in acquiring its interest in the policies.”

While both Hardwick and DCD stated that they relied on Transamerica reassurances as to the remote likelihood of a COI increase during their commitment to buy, the court documents show that it was “undisputed that Hardwick signed numerous documents acknowledging that the existing MDR was not guaranteed and could increase in the future.”  In addition, before investing in the policies, DCD hired an insurance expert who told them “the cost of insurance could go up so long as it went up for all similarly situated policyholders.”

In 2013, Transamerica raised the cost of insurance on the policies in the pools by approximately 50%, and per the Wall Street Journal article, the plaintiffs alleged that “Transamerica impermissibly used race-based data” when calculating the increase, which “makes the program unsustainable.”

In a statement referenced in the WSJ article, Transamerica responded, saying they “did not raise rates on the policies due to the race of those insureds, nor would we ever increase rates based on racial considerations,” saying the allegations were “categorically false and offensive.”

According to court documents, a Transamerica actuary “examined the profitability of the
Policies” by reviewing death claims over the prior life of the Policies” and after assessing census date, along with lapse and interest rate assumptions, “projected that Transamerica would lose money on the Policies in the future” without a rate increase.  The plaintiffs countered that the Transamerica actuary “reverse-engineered a death claim projection in order to support an MDR increase” and “did not consider data from the mortality experience” of another block of similar policies.

The policies were originally taken out to provide parishioners with a $15,000 burial fund and according to the WSJ article, to date they have “paid for 188 funerals.”  Per the article $50 million of the potential $660 million in benefits has been paid out.  Next week’s court date may tell how many will receive benefits in the future.

  1. Life Insurer Faces Off Against African-American Church in Battle Over Rates, Leslie Scism, The Wall Street Journal, online August 31, 2017, in paper September 1, 2017

Phoenix Announces New Cost of Insurance (COI) Increases

This week our New York City office received letters from Phoenix alerting us to cost of insurance (COI) increases on Accumulator (I, II, III, and IV) and Estate Legacy Universal Life policies.  Per the carrier, the cost increase was necessary because “certain anticipated experience factors are now less favorable than we anticipated when we established the cost of insurance rate schedule.”  According to the letters we received, there will be a flat “overall increase to cost of insurance rates, as well as progressive increases…beginning when an insured reaches age 71 through age 85.”  A Phoenix representative told us that for policies on insureds older than 85, the full increase will be implemented at once.

Policy cost increases will take place on the next anniversary date after November 2017.

Some Accumulator products will not feel the effect of the increase until after December 31, 2020.  Those policies were part of the Phoenix lawsuit that was settled in 2015. In that case, Phoenix raised the cost of insurance on Accumulator policies issued between 2004 and 2008, with face amounts of $1,000,000 or more, and issue ages equal to or above 65 or 68, depending on the policy. The plaintiffs alleged that the increase, which took place in 2010 and 2011, “did not apply uniformly to a class of insureds, discriminated unfairly between insureds of the same class, and were improperly designed to recoup past losses” (1).

While Phoenix denied the charges, they did agree to establish a settlement fund of up to $42,500,000 as compensation for the affected policyholders. In addition, the carrier agreed to “not impose any additional COI rate increases” on the affected policies, “through and including December 31, 2020” (2).

While we do not know the COI percentage increase, we have been told by carrier representatives that it will be consistent across each individual policy type.

According to the carrier, illustrations will be available 11/6/2017 reflecting the future cost increase for all policies affected, even those that were part of the settlement.  We will be reviewing that information, and will publish our findings.

  1. Frequently Asked Questions,
  2. Decision and Order Approving Class Action Settlement and Approving Motion for Attorney Fees, 9/9/15,