TIAA exits the life insurance business

The move is a big deal for RIAs, experts say, since TIAA was one of only a few insurers to offer fee-only life policies.

TIAA, one of the largest U.S. life insurers, is exiting the life insurance business, ceasing the manufacture and distribution of its products by the end of the year.

The firm’s annuity business will continue and be unaffected by the change, according to a memo Tuesday signed by Dennis Rupp, TIAA’s director of insurance wholesaling, and obtained by InvestmentNews.

TIAA will maintain and continue to service existing life insurance products, which include term, universal and variable universal life insurance. Mr. Rupp said TIAA came to its decision after “months of analysis,” calling it a “significant change” that’s attributable to a shift in business strategy.

Spokeswoman Elizabeth Anderson said that while the firm will no longer sell its own life insurance products, it will “offer a variety of solutions from other carefully selected providers to meet our customers’ life insurance needs,” which is meant to “enhance [TIAA’s] operational efficiency.”

TIAA, whose primary client base is teachers, will honor any life insurance cases with a completed formal application by Sept. 30, according to the memo. Dec. 31 is the final date a policy will be issued, since the average case takes roughly 60 days to complete the medical and financial underwriting. Term conversions after Dec. 31 still will be available for TIAA’s Intelligent Universal Life product.

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TIAA’s exit is bad news for registered investment advisers, said Barry Flagg, president and founder of Veralytic Inc., which provides life insurance research and ratings. TIAA is one of only a handful of insurers that sell no-load, fee-only life insurance policies.

Typically, insurers pay agents a commission when they sell a policy to a client, but some RIAs don’t receive commissions. No-load policies allow such advisers to count the cash value in a life insurance policy toward the client’s overall assets under management and charge an annual asset-based fee, Mr. Flagg said.

“A significant provider has just left the market,” he said. “This is a huge deal to the RIA community.”

It’s especially bad timing, Mr. Flagg said, because more advisers will move toward offering fee-only policies due to a New York state rule going into effect next year that requires life insurance sales to be in clients’ best interests and a new fiduciary standard for certified financial planners taking effect this October.

(More: Universal life insurance lawsuits underscore product risk)

TIAA is a relatively small U.S. life insurance player — it ranked No. 31 in the industry last year in terms of new individual sales, with $198.4 million in first-year and single premiums, according to S&P Global Market Intelligence. By contrast, the largest seller, Northwestern Mutual, had nearly $5 billion in new sales.

However, TIAA is among the largest annuity providers. It ranks eighth in overall annuity premium, with $15.1 billion. TIAA ranked sixth among all life insurers in terms of total revenue last year, with $32 billion.

Universal life and variable universal life insurance sales industry-wide have been on a downward trend for years, and low interest rates have crimped insurers’ ability to turn a profit, according to experts.

“Part of the reason they’re getting out is because they’re not selling enough,” Mr. Flagg said.