If you’ve been dragging your feet on any universal life applications, you’d better get your act together; not only is the cost for your client going up, but your compensation structure may also be affected.
Two insurers have announced changes to the rates and commissions for UL level cost of insurance (COI). The changes are part of a larger trend among insurers to pad out their return on investment—a trend that began last fall.
“This all started last October with Manulife, and virtually every other carrier followed suit by the first quarter,” says Byren Innes, senior vice-president and director of NewLink Group Inc. “Advisors should anticipate that this is the beginning of round two, not the end of round two. At least one other company is looking at making changes by the end of October.”
When one company takes the lead, the rest have a choice: follow along with their own increases, or try to gain market share as a lower-cost carrier. Innes says any publicly traded carrier will jump at a chance to pad its margins.
“In doing so, they’re getting a more appropriate ROI on their products, because they probably weren’t getting what they were targeting,” says Innes. “The attainment of long-term ROI is more important than any short-term gain in market share. This will probably get the companies near to their target ROI.”
The first changes announced in “round two” came from Empire Life and Manulife.
In the case of Empire, the COI rate increase in Trilogy and Trilogy Plus will, on average, increase by about 3.5%. Applications signed by September 30—and received by Empire’s head office no later than October 4—will receive the old rates.
Pending, “in the mill” business that’s received by head office on September 30, 2011 will be eligible for old plan rates until the application is closed for outstanding requirements.
No word on advisor compensation, however.
Manulife’s changes are a little more detailed.
On average, the level COI rate increases are as follows: 9% on InnoVision; 12% on Security UL; and 7% on Limited Pay UL. The largest increase is among clients aged 35 to 45, with an increase of 20% to 25%, according to Innes.
Family Term 100 will increase in price too and will be 3% less than the cost to purchase level UL. The minimum issue age is rising from 40 to 60.
“They’ve taken the strain off of the early years of a policy, for themselves,” says Innes. “They’re taking less of a financial hit upfront.”
As for advisor compensation, the deposit commission on InnoVision will drop from 6% to 5%. This might not have a huge impact on advisors with smaller clients, but anyone basing their business around “dumped in” premiums could see a significant hit to their revenue.
The renewal commission on Security UL will not only decline, but will be paid out more gradually. Instead of the current 7% for four years, advisors will receive 3% for nine years.
“It’s basically the same compensation—28% down to 27%—but they’re dragging it out,” says Innes, pointing out that in a low-inflation, low-interest environment, this extended schedule won’t hurt advisors very much. But if inflation or interest rates were to rise significantly down the road, the impact would be greater.
All Manulife changes are effective October 15th, 2011, so applications must be in before 5 p.m. on October 14 to get the current rates and commissions.