Industry Alert- TIAA-CREF to Exit Life Insurance Business
Trustees and Insureds may contact MSF Companies to learn how this may impact plans and products.
TIAA-CREF Life Insurance, a wholly owned subsidiary of TIAA, announced last month that it would cease to manufacture and distribute life insurance products as of December 31, 2019. Anytime an insurance company makes a major change like this, policy holders should work with their independent insurance advisor to review inforce coverage to determine what is in their best interest going forward with their policies. Key facts from the announcement:
TIAA-CREF Life Insurance (TIAA) will continue to offer annuities, service the inforce block of insurance policies and allow inforce term policies to convert.
TIAA distributed product through two channels:
A no load fee-based product through a number of RIA and advisor channels.
Commission-based products (VUL, UL and term) through M Financial Group.
TIAA was not a large life insurer (not in the top 25 in the U.S.) but is a top writer of annuities.
If you are asked for advice from an advisor or client with an existing TIAA policy, their exit raises some specific considerations:
Product Performance: Without the need to place new business, carriers’ motivation to keep inforce products competitive may be reduced or limited (e.g. declines in crediting rate or no longer enhancing existing products to keep them competitive with new features, etc.). In addition, carrier expenses to administer a closed block are spread over a declining number of policies. More frequent inforce performance reviews should be conducted to ensure the policy will continue to meet the policy owner’s goals, or whether options are available with other carriers through a Section 1035 exchange that may be better suited to do so through enhancements such as stronger guarantees, more competitive pricing, new riders or features, etc.
Customer Service: The costs of servicing a closed block will increase on a per policy basis and talented service professionals are harder to recruit to a closed block. The quality of carrier service should be carefully monitored.
Financial Strength: When a carrier exits, attention should be paid to financial strength. Is there a solvency issue? Is the block likely to be sold to a third party? In the case of TIAA, this is less of a concern than in other exits. The rating of the parent is among the highest in the industry and the very large, and ongoing, annuity business of TIAA significantly reduces this risk.
The exit of TIAA illustrates the need for adequate due diligence of a carrier in the selection process. The client is asked to make a long-term commitment when entering a life insurance contract and should expect the same commitment from a carrier to the business line. A carrier exiting a business line introduces unexpected risks to existing policyholders. Due diligence analysis should include:
How long has the carrier been in the business line?
Has it been successful?
Do they have a product and distribution strategy that has scale?
How competitive is their history of inforce performance and managing non-guaranteed policy elements?
We recommend that clients meet with their independent insurance advisor anytime they have a policy with a company that has announced major changes that could impact policy performance or service.
For a complementary consult or more information regarding this update please contact Michael S. Berry, ChFC at 855-449-7100 or by email at mberry@msf-advisors.com.
