Stagnating interest rates have caused insurance companies in the life, health and disability sectors to seek out ways to raise policy rates and fees on their customers.
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Wall Street Journal report suggests that low rates orchestrated by the Federal Reserve have cut into insurer profits. Companies typically rely on investment bonds fueled by customer premiums to drive much of their profits, favoring high-quality, long-term corporate bonds. As the Fed began driving down rates to improve the economy, however, those profits have tanked.
In fact, shares of 10 leading US life insurers have lost 12% since 2008, losing $30 billion in market value.
In order to recoup those lost funds, several insurance companies are now charging customers more.
Genworth Financial has raised rates particularly among long-term care policies – one customer reported a raise in her policy by 60% to more than $6,000 a year.
“Nobody ever explained that the premium was dependent on how much money they made from interest rates,” policyholder Blossom Bloomberg told the
Journal. “It probably was in the small print somewhere.”
It was. Genworth said all moves they have made to raise rates are within contractual terms and regulators have approved all rate increases for their long-term care policies.
Universal life insurance has also been hit with rate increases, with policyholders “struggling to maintain their coverage just as they’re ready to utilize it,” Henry Montag, a principal with TOLI Center East in New York, told the newspaper. “They are in such an awkward powerless position where there are no good outcomes.”
Other insurers are divesting themselves of life insurance operations all together, including
MetLife’s January decision to sell some of its life products.
Regardless of the higher rates and limited product range, Genworth and other companies say their customers are still receiving good deals on insurance.
