The continued low-interest-rate environment has spurred Desjardins Insurance to hike rates on some of its permanent life insurance and critical illness insurance products.
The changes, which take effect March 14, 2013, include an increase between 2% and 7% on products including:
- Traditional: MAXLife (T100), Guaranteed whole life, Life 10 and Life 20
- Universal life: Foundation (T100), Precision, Precision 10 and Precision 20
"We've seen a lot of changes in the last quarter on products. This is the fourth round of the Level Cost of Insurance price changes on universal life," says Byren Innes, senior vice president and director of the NewLink Group Inc. in Toronto.
In a bulletin Desjardins sent to its brokers, it announced guaranteed cash surrender values for all duration and years on Life 20 and Precision 20 will increase when the changes take effect.
On the CI side, average increases will be between 5% and 20% on the following products:
Harmony T100 (without ROP, ROP 15 and 20), Harmony T100 (10 and 20 pay), Harmony Executive (ROP 15 and 20), Harmony T65, Harmony T75 paid-up (trad), Harmony New Generation.
Due to weak sales volume, Harmony T75 paid-up (UL), will be withdrawn, the bulletin adds.
Innes notes longer-term CI policies have similar characteristics to LCOI UL insurance: long guarantees that have to be supported by reserves currently invested at low interest rates.
"These changes [to CI prices] aren't surprising; in fact, it's surprising they haven't happened earlier," he says. "It's not the first CI change, but it's significant that we're starting to see more of them. This should continue."
Desjardins is also making changes in the equivalent age formula which will "increase by one year for the joint last-to-die and joint last-to-die with waiver of premium on first death, for either traditional or Pace UL coverages."
Transition rules applicable to these changes include:
- Contracts will be issued based on the old rates, if Head Office receives the application and illustration on or before March 15, 2013 by mail, fax or e-mail; and
- A contract issued with the old rates must be settled within 40 days following the approval date from the underwriting department.
What's next for insurers?
As to the question of how insurers could cope, Innes says, "Adjustable premium products might be coming. I wouldn't want to be locking in prices today at what is conceivably the highest price we've seen in 20 to 30 years."
He points out three things that drive insurance costs are: a company's expenses, mortality rates (which are improving), and interest rates.
"Expenses 10 years from now might be lower because of technology. Mortality is going to get better. Interest rates might go up, so prices should come down," he says, making adjustable premium products viable for insurers in this environment, while still being attractive for clients.
These products wouldn't be a good buy in a high-interest-rate environment, he cautions, because when rates drop, premiums will rise accordingly.