Premium increases, some topping 200 percent, are driving policyholders to sue insurers.

The Wall Street Journal reports that people being hit with the increases on decades-old life insurance policies of anywhere from midsingle-digit percentages to more than 200 percent, are fighting back against the move by insurers to raise extra money.

According to the shareholder suits, against such companies as Aegon NV’s Transamerica and Legal & General Group plc's Banner Life, companies are pulling out all the stops on legal language that allows them to raise premiums — despite the increased profits they’ve reaped on policies thanks to longer lifespans.

More than a half-dozen suits are in the courts, many of which seek class-action status. They argue that companies are being disingenuous to blame the need for premium increases on the Federal Reserve’s decision not to raise interest rates. Instead, the suits charge, longer lifespans have allowed companies to collect premiums for longer periods of time and delaying the time when they will have to pay out death benefits.

In addition, suits charge that despite low interest yields, policies are still profitable — and the move to raise rates is the insurance industry’s gambit to force customer cancellation of policies and thus cut the amount they will eventually have to pay out.

Many of the older policies seeing premium increases guarantee policyholders annual interest rates of 4 to 5 percent, which in the mid-1980s was half, or less than half, of the average investment portfolio yield for life insurers of almost 10 percent — according to figures from ratings company A.M. Best Co.

Now life insurers aren’t even getting a 5 percent return. And considering that they seek to earn 1 to 2 percent more on universal life policy premiums than what they pay to policyholders, they’re not happy about it — regardless of how consumers may feel.

The article quotes McKinsey & Co. senior partner Giambattista Taglioni saying that between investment shortfalls and those better-than-expected life expectancies, “the policies are still profitable” on an industrywide basis — although some companies are definitely doing better than others. Taglioni adds, “Some blocks of business are already underwater, and some others have reduced profitability but are still profitable.”

Instant Insights /

Policyholder suits hit insurers over premium increases

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