By Arlyn Tan
The surge of cases of death and illnesses brought by the pandemic had caused people globally to purchase life insurance as a lifeboat in case the unexpected happens.
In the local context, the purchase of protection products had been based on relationships, price, promise of investment returns and simplicity of proposals. People often buy life insurance because of the person who sold it. Beyond that, policyholders perceive that the strength of all companies are all equal.
On April 22, 2021, the Philippine regulator Philippine Insurance Commission released the performance of the different life insurance companies based on 5 metrics: total premium income, new business, net income, asset, net worth and total assets. Different companies topped each category. This performance reveals the company’s financial health and the capabilities of the management team.
Take time to understand the impact of these metrics because your journey with a life insurance company is lifetime. You want to know them not only by name. You want to be sure that they are truly reliable in their promises to provide critical illness and death benefits, and emergency funds.
1. Total Premium Income speaks volume of the business size and product concentration of a company. The income reflects the renewal premiums from all active policies that were acquired from the past to present. The companies with very high concentration on single pay will have low total premium income because there is no renewal income.
The future benefits of the policyholders and beneficiaries depends on the discipline of paying premiums regularly. Enabling policyholders to pay conveniently through facilities like online payments, credit card payments, auto debit and auto charge are initiatives that help increase the total premium income.
2. New Business Annual Premium Equivalent (NBAPE) shows how the sales performance was in a year. This reflects how the companies’ client acquisition strategies were executed. The number shows the value of the premium that was achieved in one year. The higher NBAPE for the industry the better because it means that more families are protected. NBAPE is the sum of the value of the first-year premiums and the 10% of the single premiums written.
The size of the agency affects the size of the NBAPE because of the purchasing behavior of Filipinos which is relational. In the future, you may be able to purchase life insurance not only from advisors but from hybrid channels : online + advisor.
3. Net Income reveals the ability of the company to manage its income and expenses. Profitability arises from company operations and investment results. It is reflected through this simple formula Premium + Returns on Premiums – Claims – Expenses.
The higher net income, the better for the company. The insurer can experience growth because of access to investment opportunities, internal funds, and capital markets. The impact of profitability on perceived solvency sends a strong message to the consumer that the company will be available to release the claims 20 to 40 years or beyond from date of purchase.
When a person is requested to undergo medical exams as part of the approval process, the company is managing its future expenses to be within actuarial computations. When companies have good returns in their investments, it is able to make their policyholders happy.
4. Total Assets reflects the cash & policyholders’ surplus, medium- & long-term fixed income investments.
5. Net Worth is the difference between the company’s assets and liabilities. The liabilities include the policy reserves to pay out its obligations to policyholders. A positive net worth shows that the liabilities are covered by the total assets in case all liabilities need to be covered today.
When purchasing products which promise guaranteed returns in the future, one needs to be prudent in making sure that the company that you are dealing with has enough assets to cover its promises to the policyholders. The Philippine regulator Insurance Commission is doing the work for you by checking the capital base, technical reserves, solvency margin, accuracy of valuations of assets and liabilities, and the adequacy of reinsurance programs of the Life Insurance Companies.
Now you know the significance of the metrics, you can now make an informed choice rather than just basing your decision on relationships or price. You can sleep soundly at night that when the need arises, the company that you trusted for unexpected liquidity requirements is there to serve as your family’s lifeboat.
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan