After four years of discussion, the National Association of Insurance Commissioners (NAIC) adopted Regulation Triple X. The regulation requires insurers to increase their monetary reserves for guaranteed universal life and term policies.

With the new rule now in effect, the term insurance marketplace is showing greater fluctuation in rates as well as continued adjustments to the time frames offered for guaranteed-level term policies.

Fewer Long-Term Policies Being Offered
One of the most significant changes in the first quarter of this year has been the drop in availability of 30-year guaranteed-level term products. The selection of 30-year products may be more limited since the advent of Regulation Triple X but they have not been wiped out, as some had feared.

While several companies have recently discontinued the sale of 30-year-term policies that lock in premiums for the entire term, others have jacked up the rates on their 30-year policies -- sometimes by as much as 150 percent -- to offset the rising expenses associated with maintaining the required reserves.

Price Fluctuations
But huge price hikes are not the industry norm. In a few cases, prices are even less expensive for term policies than they were in 1999.

"The carriers earning the highest rating (as rated by AM Best) have become more competitive," said William H. Bland, Quotesmith.com's director of carrier relations. Quotesmith.com provides instant, online quotes from more than 130 term life companies.

"The overall net effect was a 10-18 percent rate increase," Bland said. He added that as of May 2000, the latest information on price activity dated from around the first of March.

What is Regulation XXX?
The NAIC proposed this new regulation to require insurers to increase their monetary reserves for guaranteed universal life and long-term policies. The goal is to protect consumers, as well as the insurers, from the threat of insolvency.

The regulation's title itself appears to be an attention-grabber, but the name wasn't intentional. XXX was a temporary name that just stuck before the NAIC could give the proposed regulation a permanent number.

The new legislation was prompted by the NAIC's concern that companies were pricing their term life products too low to be able to pay out on long-term policies later on down the line. (The regulation defines long-term guaranteed rate plans as anything over 10 years). Subsequently, Regulation Triple X forces insurance companies to invest greater portions of their reserves in conservative, low-yield investment vehicles, as opposed to more competitive instruments with higher returns. As a result, insurance companies are responding by developing new products and business strategies to make up for the shortfall.

Reduced Premium Guarantee Periods
For example, some have reduced their premium guarantee periods. Today's 20-year term policy may in fact have a variable rate structure instead of a guaranteed-level premium. In such cases, the level-guarantee period may only be five or ten years -- which means it is not affected by Regulation Triple X. After the guarantee period expires, the premiums could potentially rise during the remaining years -- but insurers must clearly describe the worst-case scenarios in their policy materials.

This may make things more confusing for consumers who are shopping for level-premium term life insurance. At the same time, consumers are becoming more informed about the vast array of choices available to them. They have easy access to terms, pricing and carrier rating information via the Internet. They can shop for term insurance online and compare policies nationwide before ever talking to a salesperson.

Wait-and-See Approach
Reducing the guarantee period is one strategy that some companies are using to decrease the amount required for their reserves. Others have been increasing premiums to meet the higher reserve requirements. Some are doing a little of both. Carriers with larger reserves are in a position to lower prices, which is what a few have done, though many of the larger carriers appear to be taking a wait-and-see approach.

As more companies respond to the new regulation and the pressures of the marketplace, the industry's competitive landscape continues to evolve. Over the next six months, expect to see more frequent changes in term insurance products, as insurers begin to react to one another's new rates and strategies in this post-Regulation Triple X environment.

Originally published by SmartPros on July 17, 2000.

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