For the Long Term.

Life insurers struggle to offer level-premium term life products that comply with the new Triple X regulation and that meet the needs of their customers.

Triple X, the regulation that forced insurers to increase their reserves for level-premium term life policies, has consumers, insurers, online aggregators and producers struggling to handle more complicated products, higher prices, fewer guarantees and marketing uncertainties.

Insurers entered the first quarter with some products that weren't Triple X-compliant or didn't know how their new products would stack up against the competition. Some were left with products they could sell in only about 15 states, said Douglas Donnenfield, president of InsureRate, the online division of Homecom HIFS, Houston.

Others, such as Zurich Kemper Life, Long Grove, Ill., had a new portfolio of products ready to go in January, but the company found it had priced the new products too high. Having a new portfolio "actually hurt us," said Ken Sapp, president of Zurich Kemper's life broker division. "We priced them where we thought they should be, but we missed the market," he said. "We then had to make adjustments, and the consumers benefited. We maintained commissions to our producers, so we had to take narrower profit margins."

As insurers rolled out new nonguaranteed products to complement the more expensive guaranteed lines, producers have had to explain to consumers that there are two kinds of products for each length of term and what the trade-offs are. "So there has been quite a bit of confusion for agents and brokers as they go through the learning process about what best suits their customers," Donnenfield said.

The National Association of Insurance Commissioners adopted Triple X, the nickname for the Valuing Life Insurance Model Regulation, in March 1999, and states were able to put it into effect beginning Jan. 1. As of mid-April, 27 states had adopted the regulation, three had implemented it through emergency rule, and six were actively considering it, according to Van Elsen Consulting Inc., Colfax, Iowa. Holdouts include California and Florida.

The regulation affects consumers in all states, because insurers selling a product in a state that has approved Triple X must assure regulators in those states that they have increased reserves for the product in all other states, said Robert Barney, president of Compulife Software Inc., Nicholasville, Ky.

Consumers Left Vulnerable

Barney, an outspoken critic of the regulation, said the consumers are the big losers. Prices for products with level premiums have risen progressively through the guaranteed periods. For 30-year policies, some level premiums have doubled from last year, he said.

On average, premiums have risen about 16% from the end of last year, to about where prices were a year ago, said Robert Bland, president of Quotesmith.com, a Darien, Ill.-based online insurance broker. Bland said the vast majority of 30-year policies hadn't doubled in price, and those that had were an indication that the companies offering them really weren't interested in selling policies of that length.

As an alternative to the higher premiums, insurers have introduced new products that guarantee flat premiums for generally three to 10 years. These initial rates are usually equal to or lower than last year's full-term guaranteed rates, but they leave the consumer vulnerable to price increases later.

"In reality, consumers that purchase nonguaranteed policies need to be concerned about the reputation and financial integrity of the company selling them," Zurich Kemper's Sapp said.

Aside from keeping its word, a company has other reasons to keep its premiums level. Sapp said that if a company raised prices after the guarantee period, its healthy customers would flee to another company and the original insurer would be left with the unhealthy.

While predicting that insurers would be able to keep premiums level, Barney said consumers still could get caught without contractual guarantees. For example, if an insurer is acquired by another with little interest in the term market, the acquiring company is likely to raise rates. Or if an insurer becomes insolvent and regulators sell off blocks of business, regulators might push up premiums rather than tapping into state guaranty funds, he said.

Insurers also could face classaction lawsuits if policies didn't meet consumers' expectations, Barney said. He pointed to another regulation that has been in effect for several years--the insurance commissioners' model illustration regulation--which should help insurers fight such lawsuits. Under that NAIC model law, producers must provide a multipage document to buyers when policies have nonguaranteed elements, and the buyer must sign a page attesting to having read and understood the document.

Boon for Online Sellers

Meeting customer expectations--and avoiding the model illustration--is why Quotesmith.com quotes and sells only guaranteed products. The company is quoting about 130 term-life carriers, the same as in 1999, and Bland said he expected a steady demand for guaranteed products. "The consumers will fare fine," he said. "They still see guaranteed level-premium term as alternatives to whole life, variable life and universal life."

The coming of Triple X created a rush of business and Web site visits for Quotesmith in recent months. "We love the chaos and the lack of information," Bland said. "If you own a database, you love it because people come to you for answers."

Bland also has noticed that in the new Triple-X world, the highly rated insurance companies with big surpluses "show much better on our system." Smaller, less capitalized companies are struggling to obtain the reinsurance they want. "I wouldn't call it a flight to quality, but the better-capitalized companies have come to the forefront," he said.

Bland predicted that the volatile stock market might make level-premium term policies--which was a $10 billion business in premiums last year--even more popular at the expense of variable policies. He said Quotesmith sold about 18,000 policies last year and expects to sell about 50,000 this year.

Making Their Pitches

Chicago-based CNA Life Cos. has experienced a downturn in sales so far this year, said Bob Miller, vice president of marketing. But that is because of the "fire sale" the companies held at the end of last year. "We did about four or five months of business in two months, so the pipeline just emptied out," Miller said. "Now the agents are placing all that business and developing new leads."

CNA had a new lineup of nonguaranteed products ready by December, but Miller said the guaranteed products are still more popular this year, even though they are about 10% to 20% more expensive than last year's guaranteed products. Part of the reason, he suspects, is that agents know they can earn a better commission from the guaranteed line, but he expects that more nonguaranteed products will sell in the coming months as customers realize they are less expensive.

All CNA products with terms of 10 to 25 years carry at least a 10-year rate guarantee. Miller said CNA's re-entry provision should prove a good selling point. It says that if the policyholder is certified to be healthy after the 10 years, the company will extend the level premiums to the rest of the term. He added that VIA Choice, a popular CNA term life product, has been discontinued. It offered policyholders the right to lock in a level premium of their choice after seven years of lower-priced annual renewable term premiums.

InsureRate's volume of business so far this year has been ahead of the pace at this time last year, but gross premiums are down, Donnenfield said. With the shorter guarantees, people are buying more policies of five, 10 or 15 years in duration, and premiums are less expensive than those of the 20- and 30-year policies that people had been buying, he said. InsureRate acts as a referral service to banks and other financial institutions and, therefore, can quote nonguaranteed products without having to provide the illustration documents.