The heads of America's life insurers asked LIMRA, their nonprofit life industry research group, to start a review process that ultimately led to a consultant, Scott Campion, giving them a jolt of economic ice water.
Back before the COVID-19 pandemic and its related shutdowns, life insurers asked LIMRA to set up a low interest rate task force to look at the impact of low rates and other, related concerns on life insurance and annuity issuers.
LIMRA started working with the American Council of Life Insurers, Insured Retirement Institute and management consultancy Oliver Wyman in January to analyze the issues. Campion, an Oliver Wyman partner based in New York, appeared at LIMRA's annual conference, to talk about what he's thinking.
Campion said Monday — during an online session — that he thinks life insurers have built too much optimism about interest rates into their products and prices.
In insurance, a "scenario" is a description of what the future might look like, and a "tail scenario" is the kind of scenario that seems unlikely to happen.
"Get serious about severe scenarios," Campion said. "We're in one. It doesn't mean this is as bad as it's going to get."
Life insurers traditionally have used earnings on bonds and other fixed-rated investments to support life insurance policies, disability insurance policies, long-term care insurance policies, annuities and other products that typically pay off many years in the future, that may pay benefits over long periods of time, or that may offer long benefits periods starting years in the future.