Cost of term life may rise in wake of attacks

That's because the decline in term rates, which began in 1996, may have run its course, and rates could begin creeping up again if the insurance industry moves to recover claim losses from the events of last month. In addition, insurance comparison shopping websites, which have been credited with helping to reduce term-life rates in recent years, are struggling and could eventually disappear. For example, InsWeb Corp., the Gold River, Calif., portal whose biggest outside holders include Softbank Corp., Intuit Inc. and Nationwide Mutual Insurance Co., expects to lose $28 million this year. The company has called a special shareholder meeting for this month to authorize as much as an 8-for-1 reverse stock split in an attempt to boost the price of its shares to maintain its listing on the Nasdaq Composite Index. The stock, which was trading at 53 cents per share last Thursday, has been under Nasdaq's $1 minimum bid price since June 21. The company had $42 million in cash and short-term investments at midyear and said it expects to have sufficient capital to continue operating through at least next June. Quotesmith.com Inc. of Darien, Ill., cut its staff 23% in August. And to conserve capital, it expects to spend just $7 million for marketing this year, less than one-third the $24 million it spent last year. "Everyone has given up on insurance on the net," laments Quotesmith.com founder and CEO Robert Bland. "There's been no success story like an eBay Inc. or a Cisco Systems Inc. to emerge in this sector. I predict there won't be until there is wider adoption of online applications and in particular carrier adoption of e-signatures," he adds. Mr. Bland figures that one-quarter of the visitors to the company's website are brokers, financial planners and competitors monitoring prices. For consumers and their advisers who move quickly, current low term rates could spell significant savings if they find themselves in need of additional life insurance coverage. Term-life rates are the lowest in at least five years, thanks in part to longer life spans, declining reinsurance rates and competition by web-based insurance portals.

On the net

According to a poll last month by Quotesmith.com, premiums for females have dropped an average 7.8% in the last six months, while rates for males are down 6%. "If people want more coverage, but don't feel good about the equity markets and variable products, the logical place to look is term insurance," says Michael Cohen, head of research for U.S. life companies at A.M. Best Co. in Oldwick, N.J. The financial strain of the online insurance industry's two biggest participants as well as some of the other more than 100 smaller insurance shopping sites could eventually lead to higher term-life rates, says Robert Baranoff, head of research at Limra International, a life insurance industry marketing group in Windsor, Conn. Indeed, a study last year by Jeffrey Brown at Harvard University and Austan Goolsbee at the University of Chicago concluded that the growth of comparison-shopping insurance websites from 1995 to 1997 reduced term-life prices by 8% to 15%, saving consumers $115 million to $215 million annually. Internet market consultant Forrester Research Inc. in Cambridge, Mass., estimates that less than 1% of consumer insurance purchases are made online. However, Quotesmith.com's Mr. Bland suggests that the incidence is higher for term-life policies. His company alone sold 34,000 term-life policies last year - nearly 1% of the 3.4 million new polices sold nationwide. Still, the role of insurance-quote websites may pale in comparison to how insurers will decide to treat claims from last month's terrorist attacks. "Some direct writers could well pass along these extra losses to future policyholders through rate increases," says A.M. Best's Mr. Cohen. Those companies most likely to increase rates are insurers that were less strongly capitalized before the terrorist attacks, he adds.