That was worth the hour and a half.
Karl's just as good in a podcast as he is in print, that's a rare skill set.
TMPHBITEU
SS Radio #128 with Karl Denninger
A Conversation with Karl Denninger | Starting Strength Radio #128
This full video is a freebie, follow the link to the network.
Member
That was worth the hour and a half.
Karl's just as good in a podcast as he is in print, that's a rare skill set.
Member
Emailed Rip about this, and Stef said I should post this in the forums, so here goes:
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Hey Coach,
Been a SS fan for probably a decade (maybe more?). Anyway, I was surprised to hear you talk about the life insurance industry on the last podcast.
Not something I would except (edit: "expect") on SS haha.
Anyway, you mentioned that COVID hasn’t caused insurers to increase premiums.
I’ve worked as a life insurance agent for 17 years, and so it’s a topic that interests me too for obvious reasons. I’ve noticed this phenomenon as well and reached out to a product development guy I know who consults with a lot of the larger life insurers in the U.S. to get his take on it.
Word on the street is, it is affecting the COIs (cost of insurance), but they haven’t increased premiums yet but is something they are considering. This makes a lot of sense to me because life insurers generally don’t price life insurance products based on what’s happening now. There’s almost always a delayed effect due to how insurers do their pricing.
For example, life insurers have (until recently) been able to pay interest on death benefits and cash values of life insurance products that far exceeded the current interest rates on bonds. This is due to how bonds are “laddered” in an insurer’s portfolio and also the other interest rate hedges they’ve been able to use. It meant that when interest rates were 1%, insurers could still afford to pay 5% on their insurance policies.
Eventually, low interest rates catch up with them, but it’s taken literally decades for it to come to a head.
A lot of insurers take the position that they can do something called “mean reversion pricing”—assume things will improve in the future so they price policies as though things have *actually* improved.
Obviously if things don’t improve in real life, the shit hits the fan in an epic fashion.
Something else you mentioned was about how insurers have a tendency to not want to pay claims.
This is not true of life insurers because all life policies are valued contracts. They pay exactly what the contract is worth and if they do not pay the death claim (usually within 30 days), interest accrues and adds substantially to their cost—something you rightfully pointed out that insurers hate (increased expenses). Historically, insurers have not reneged on their life insurance obligations. The economic incentive is to pay and pay relatively quickly.
Other insurance companies don’t operate this way because they sell indemnity contracts, which carry no penalties (edit: except maybe lawsuits from pissed off policyholders) for adjusting the claim downward or slow-paying on claims.
Anyway, it does look like insurers will eventually have to reprice new policy sales because there have been excess deaths. Whether they are actually COVID deaths is another matter entirely. But insurers don’t really care whether you die of COVID or something else. All they care about is that you died and dying costs them money.
I’d love to talk to you about this on your show, but I understand it’s not the most interesting topic to a lot of guys.
Either way, love the show.
Rock on.
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Some additional thoughts I had last night and this morning:
+ There are really 2 different types of insurers: privately owned (owned by policyholders) and publicly owned (owned by stockholders). Public companies outnumber privately-owned companies by quite a wide margin, but there is massive consolidation going on in the industry that has some pretty serious implications for millions of policyholders, pensions, and a bunch of other side effects that remain to be seen and it's happening almost entirely on the public side of things. MetLife, Voya, TIAA-CREF, Aviva, Sun Life, Allstate, Jackson, Hartford, Genworth, Travelers, Cigna, Aetna (although I hear they are coming out with a new life product line... we'll see how long that lasts) and the list is growing... all exiting or exited the individual life insurance business because they either fucked up the pricing or realized that you cannot run a long-term business (i.e. life insurance) using quarterly profits as metrics. A lot of these companies were household names at one point. The "quiet" old mutual life insurers (New York Life, Penn Mutual, Northwestern Mutual, MassMutual, Guardian) don't have any of the problems these stock companies have, so it's not like the life insurance business is not a viable business—clearly it is for the old line mutuals. The difference is in how management thinks at these companies (long-term vs short-term). A lot of the management at the old mutuals owns the policies that they're selling to other policyholders because policy ownership means equity ownership, so if they fuck their policyholders, they fuck themselves too. Management at public companies don't necessarily buy their own policies because why the fuck would they when buying stock is what gives you equity ownership in the company?
+ Every life insurer is going to be repricing their policies by year-end. Some have already started. Some of this undoubtedly has to do with excess mortality rates. Some of it has to do with a regulatory change that happened at the 11th hour in Dec 2020, where life insurers were freed from having to peg the guarantees in their life insurance policies to a hard-coded 4% interest rate (which has existed for the better part of 40 years, and constrained their pricing models). Policies across the board will be getting more expensive. For cash value policies, there is an opportunity to turn these policies back into something resembling the old guaranteed savings contracts and endowments of the 60s and 70s with very small death benefits and a lot of cash inside the policies. For term and universal life policies, you'll be paying more for the same death benefit—maybe double, maybe 1/4 increase. Remains to be seen how insurers tackle this one.
+ A lot of public companies that ditched their life insurance blocks of business sold them to private equity firms and hedge funds... some of them reside in the Cayman Islands. It's like something out of a movie. These firms have zero experience running a life insurance business, and their business model is oriented around squeezing every last drop of profit out of their investments—in this case, policyholders. It's unclear how they will manage these policies because they're not subject to the same rules life insurers are. A life insurer has an economic incentive to get death benefits off the books ASAP once the policyholder dies. Does a hedge fund? No one seems to know. They're basically buying "distressed" blocks of business and tasked with coming up with "creative" ways to make them profitable. This is happening both on the life insurance side *and* the annuity side. And, because annuities have long been used to fund public and private pension plans, that means interesting times for anyone who was promised a retirement pension.
Indeed Rip, we have not even begun to see the fallout from COVID, but also the low interest rate environment. No one wants to say it, but it certainly feels like a lot of people are going to get fucked in the ass with a wire brush and they're not going to realize it until it's too late.
Member
In the excellent movie Rounders, there is a famous quote that applies to some of this stuff as well:
"If you can't spot the sucker in your first half hour at the table, then you are the sucker."
✓ Member
I was encouraged to hear discussions about life insurance, the role of political correctness, and Taiwan among all the other topics.
It’s encouraging to know I’m not uniquely deranged.
(To the guy who wrote a tome on life insurance, how is the vaccination being handled in an actuarial sense?)
Member
CrapOriginally Posted by No insect
Member
Have there been?
If people can vote more than once, it is not much of a stretch to imagine an individual can die twice. Or, an imaginary individual can die.
As HIPAA is dead and we are enjoying martial law light, we should have open access to every death record for analysis.
Member
Yes, there have been excess deaths. Life insurers are on top of this because they have to be, and they're very good at the mortality piece. This is especially true in the term life and whole life space, where there is no way to wiggle out of guarantees and there are stiff economic penalties for being even a little bit wrong.
Insurers aren't doing anything special regarding vaccination status. In short, they don't seem to care whether you're vaccinated. There's no extra premium for unvaccinated people because (as you might guess) it doesn't materially impact mortality. And, even though there are excess deaths, and policies are being repriced higher for 2021, the mortality numbers say this is not serious so seems like a small increase in costs. I know of at least one carrier who didn't bother changing their COIs at all for 2020, and they managed to increase their cash surplus by several hundred million.
The people who are freaking out about this are off their rocker...
Member
There are definitely health insurance surcharges coming for unvaccinated people. It won't be widespread but we're already seeing it (Delta). It'll be a surcharge similar to smoker vs non. Given the political and regulatory environment, the surcharges in blue states won't need to be supported by actual costs.
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