Surrender value principles- Auction Value

[Rajat gupta]

Hi All,

I have question on the following Surrender Value principle:-
"take account of surrender value offered by competitors (and possibly also auction values, where possible). Here I could not understand why an insurer be concerned about surrender value offered in secondary market. Even if it is higher than what an insurer offers,it will still have no effect for the original insurer.Policy will continue till maturity or earlier death and premiums will be paid (although by specialized broker/ other insurer rather then the insured person). I could not see if a policy is sold in secondary market then it will effect persist ency/lapse rates of original insurer. Can somebody please explain this principle and let me know if my understanding of auction value and secondary market is incorrect.

Regards,
Rajat

 

[Jian_901]

Hi Rajat

My understanding is that, if you have a higher auction value, you as the insurer can sell the policy to the secondary insurer for a higher price, hence a higher profit upon the sale.

Cheers,
Jian

 

[Mark Willder]

Hi Rajat

My understanding is that, if you have a higher auction value, you as the insurer can sell the policy to the secondary insurer for a higher price, hence a higher profit upon the sale.

Cheers,
Jian

Hi Jian

I'm afraid this isn't right. The secondary market is used by policyholders to sell their contracts. As Rajat has said, the original insurer still receives the premiums and pays the benefits, but to the new owner of the policy rather than the original policyholder.

Best wishes

Mark

 

[Mark Willder]

Hi All,

I have question on the following Surrender Value principle:-
"take account of surrender value offered by competitors (and possibly also auction values, where possible). Here I could not understand why an insurer be concerned about surrender value offered in secondary market. Even if it is higher than what an insurer offers,it will still have no effect for the original insurer.Policy will continue till maturity or earlier death and premiums will be paid (although by specialized broker/ other insurer rather then the insured person). I could not see if a policy is sold in secondary market then it will effect persist ency/lapse rates of original insurer. Can somebody please explain this principle and let me know if my understanding of auction value and secondary market is incorrect.

Regards,
Rajat

Hi Rajat

I agree with everything you say above.

I think the issue here is the reputation of the insurer. If the insurer offers a low surrender value compared to competitors or auction values, then there might be unfavourable press comment. This would impact future sales.

Best wishes

Mark

 

[Rajat gupta]

Got it! Thanks Mark

 

[Jian_901]

Hi Jian

I'm afraid this isn't right. The secondary market is used by policyholders to sell their contracts. As Rajat has said, the original insurer still receives the premiums and pays the benefits, but to the new owner of the policy rather than the original policyholder.

Best wishes

Mark

Thanks for the correction Mark!

 

[Adam]

Hi Jian

I'm afraid this isn't right. The secondary market is used by policyholders to sell their contracts. As Rajat has said, the original insurer still receives the premiums and pays the benefits, but to the new owner of the policy rather than the original policyholder.

Best wishes

Mark

Hi Mark,

Just a follow up question on secondary market: if person A buys an whole life insurance for himself, and then sells it on secondary market to person B, then does that mean the insurer (from which A buys the insurance) will effectively provide mortality cover to B? If so, should there be any underwriting on B to reduce anti-selection risk?

Thank you!
Regards,
Xu

 

[Lindsay Smitherman]

Hi - the policy remains written on the life of person A, so it will pay out when person A dies (or survives, if it were an endowment assurance). Person B has basically bought the rights to receive the benefit payment.