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New bill could be boon to life insurers

Life Insurance and Annuities
by Tim DeMars
New insurance bill put on hold
New insurance bill put on hold

The life insurance industry has largely been flagging in the years since the recession for a number of reasons. If a new bill before the U.S. Senate is passed, though, it might allow them to see a significant uptick in business in realms they were previously not allowed to explore.

U.S. Sen. Orrin Hatch, a Republican from Utah, introduced a bill known as the Secure Annuities for Employee Retirement Act earlier this month, which would effectively allow private life insurers to wade into the areas of pension funds for state and local governments, according to a report from Life Health Pro. Under the law, life insurance issuers licensed in the specific states in which they would be operating would be able to sell fixed annuities to local governments through a traditional bidding process.

In theory, such a move would be a boon to both insurers, for obvious reasons, and state or local government workers as well. Right now, many of these pension plans are extremely underfunded, and a report from Hatch's office that was published last year, showed that the shortfalls in this area could eventually climb to more than $4 trillion nationwide. Recent estimates by Moody's Investors Service show the problems may not be quite so considerable, but even if they come in well below that level, would still provide ample opportunity for life insurers going forward.

Companies that are well-versed in selling these types of retirement accounts would clearly be in the best position to benefit from the regulatory change, the report said. In fact, because this is likely to be new money in the market, rather than simple asset churn, the advantages could be even more pronounced than with traditional annuity sales.

Of course, this means that the life insurance industry will need to be prepared for such a change, the report said. Some are skeptical as to whether companies' abilities to manage these issues in a large number of states will be able to withstand all the various regulatory compliance issues that may arise.

However, if this law is passed, insurers which do not participate may find themselves a little bit left behind. For this reason, companies may want to keep close tabs on the developments as this bill moves forward, so that they can be fully prepared for any changes that might come as a result.

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