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Deficit-reduction initiatives in
Companies such as Ohio National, a life and annuity business, should be regulated differently from companies in the banking, investment banking and insurance business, he said. Such companies need “a heightened regulator” with more scrutiny because of their more complex nature, said Huffman, who spoke on a panel with other industry CEOs at the life insurance conference’s general session
The following are excerpts from Huffman’s interview with BestWire:
Tax treatment: They’ve created a list called tax expenditures and on that list are two big things related to the life insurance industry. One is the tax-deferred treatment of the inside cash-value build up in life insurance and annuities, and the deductibility of 401(k) plans, which are big products for the life insurance industry. If the tax treatment changes, more than likely, sales would go down in all of those products — life insurance, annuities and 401(k) plans…
Who this would impact: Everyone receives the tax benefits of life insurance, annuities and 401(k) plans equally. Whole life, universal life, variable universal life and second-to-die. What the cash value is in a whole life insurance policy, for example, is the reserve building up in the policy to pay the ultimate death claim. Over the years, the life insurance industry has allowed policyholders to have access to those reserves that build up through policy loans, if they surrender, they get the cash surrender value, and all of that money accumulates tax deferred.
Tax drawback: People will continue to buy life insurance for the pure tax benefits of the death benefit but it takes away some of the attractiveness of these products from the accumulation perspective.
Cutting costs: Everyone agrees — Democrats, Republicans and the president — that we have to reduce spending and we have to look for more revenue. But the facts are, everything’s on the table today so if they’re talking about cutting social programs, then life insurance, annuities and 401(k)s also are going to be on the table.
Financial services reform law Dodd-Frank: Dodd-Frank was written in such a way that they’re going to figure it out as they go along. Any time you insert uncertainty in any industry, it paralyzes people because whether it’s an individual or a corporation, how do you make long-term plans if you don’t know what the deal is going to be? Dodd-Frank has inserted a lot of uncertainty into who’s going to be regulating what.
The Optional Federal Charter, which is now off the table with the current
Differentiating from banks: The insurance business is different from the banking business — commercial banking or investment banking. The life insurance business is in the long-term risk management business — we are not in the demand deposit business like a bank, we are not in the commercial loan business like a bank, we’re not into taking companies public like investment bankers do and we don’t broker merger and acquisition deals like investment bankers do. Life insurance, the core product, on average, can be a 30-year risk before a policy settles or pays a death claim.
The conferences, sponsored by LIMRA, LOMA, the
To listen to another interview with Huffman, where he discusses his long-term strategy for Ohio National, as well as the estate tax and the industry’s struggle with recruiting agents, go to http://www.ambest.com/media/media.asp?RC=185346