Outsourcing is a word that has been bandied about in the business world. The term has been used interchangeably with off-shoring, the process of moving business positions and applications overseas where cheaper labor drives down costs. What I will be talking about is true outsourcing, the use of an outside US based firm to take over internal tasks. Outsourcing can lower costs, improve the customer experience, place the focus on core competencies, grow revenue, mitigate risk, and allow access to information and skillsets not held within your bank or trust company, accounting or law firm. Outsourcing the administration of your Irrevocable Life Insurance Trusts does all of this.
A class action lawsuit brought against Mass Mutual Life Insurance Company has resulted in preliminary approval of a $37.5 million payout. The payout benefits policyholders of Mass Mutual participating policies held between January 1st, 2001 and December 31st, 2016. A participating policy is one that receives dividends. ITM TwentyFirst has begun to receive notices of the payout that was agreed to in a document filed March 13th of this year in United States District Court District of Massachusetts. ITM TwentyFirst manages or reviews almost 1,000 policies from the carrier, the majority being whole life participating policies.
A new methodology for calculating policy reserves for life insurance policies has taken effect. The new methodology grew out of the 2009 National Association of Insurance Commissioners (NAIC) revisions to the Model Standard Valuation Law. Dubbed Principle-Based Reserving (PBR), the law was to take effect on the first day of the next calendar year if 42 states enacted the revisions by July 1st. The threshold was passed in 2016 and as of today, 46 states have adopted the revised laws.
It is estimated that every year, seniors in the US surrender or lapse over $112 billion dollars in life insurance death benefits (1). Most of them probably have no idea of their options, but grow tired of the premium payments and walk away without maximizing the value of an asset they may have paid for over a lifetime. For the uninformed consumer, this could be just a lost opportunity, for the Trust Owned Life Insurance (TOLI) trustee, this can be a source of potential liability.
In November of 2015 we published a blog noting that Transamerica was no longer providing inforce illustrations with “current assumptions” on a number of universal life policies. We pointed out the challenges that raised in managing policies without an understanding of “what Transamerica is actually charging and crediting” in the policies.
Late last week, a Second Amended Class Action Lawsuit was filed in the United District Court, Southern District of New York in the Brach Family Foundation vs. AXA Equitable Life Insurance Company case we first wrote about on February 2, 2016.
Last week, our Cedar Falls, Iowa, office received notice of a class action lawsuit settlement. The settlement, stemmed from a suit filed in Alabama, Erkins v. USAA Life Insurance Co.
Less than two weeks ago, we reported that Moody’s had downgraded its 2017 outlook for the life insurance sector from Stable to Negative. A new Moody’s report published after the Federal Reserve raised its benchmark federal funds target rate by 25 basis points last week indicates that hike will benefit life insurers and “help reverse the downward march in investment portfolio yields.” (1)
In blogs published throughout 2016, we highlighted the increased challenges for TOLI trustees attempting to manage life insurance policies prudently. Life insurance cost increases more than doubled the carrying costs of many policies, while there were increased fiduciary and regulatory burdens and a multimillion dollar verdict against a major financial institution over a life insurance policy. All this occurred in 2016 and underlined the difficulties and risks associated with managing this asset.