The insurance industry will be watching closely in the coming months as a class-action lawsuit over an indexed universal life policy plays out in a California courtroom.
The lawsuit was filed Aug. 6 in Orange County Superior Courts by plaintiffs Hong Li and Tailong Liu. Defendants are listed as Tiffany Xu, Sky Vision Insurance Agency and Pacific Life Insurance Co.
The plaintiffs claim they were misled about the costs of an IUL policy and how it works. The case has broad implications for the industry and the controversial Actuarial Guideline 49 put forth by the National Association of Insurance Commissioners, said Kevin Kimmerling, senior vice president and assistant general counsel for Global Atlantic Financial Group.
He discussed the case last week at the American Council of Life Insurers' 2020 Annual Conference, conducted virtually.
"The plaintiffs claim that the insurer created a product with a feature in it that is called a 'performance factor' that is designed to be within the letter, perhaps, of AG 49 while also aggressively illustrating a profit," Kimmerling explained. "Why that matters is that the allegations in the complaint are that the agent and the company didn't really explain what that performance factor was and how it worked."
Although a class-action filing, the Li/Lui lawsuit names the agent along with the insurer. Kimmerling called it an "interesting" approach, that "in a class action that so much time is spent on what can really only be individualized case."
The California Department of Insurance lists a Tiffany Xu employed at the same San Marino address as Sky Vision Insurance Agency. She has no listed disciplinary actions and has been licensed as a life producer in California since 2008. That is the same year she became a Pacific Life producer.
The plaintiffs are represented by Bonnett Fairbourn Friedman & Balint, a Phoenix law firm specializing in life insurance sales practices. It is unknown when the case will go before a judge.
"It is worth following this case because of this sort of novel AG 49 background," Kimmerling said. "It's interesting because of the complaints against the agent itself and is certainly one that we're watching and we'll continue to watch."
AG 49 was adopted by the NAIC in 2015 to rein in IUL illustrations that were showing consumers unrealistic returns. Critics say insurers almost immediately got around the new rules by offering IUL bonuses and multipliers.
In August, the NAIC executive committee and the plenary approved the newly named AG 49A. It requires that designs with multipliers or other enhancements should not illustrate better than non-multiplier designs. Also, the new AG 49A permits the IUL illustration crediting rate to be 50 basis points higher than the policy loan rate, down from 100 basis points.
IUL have been a strong seller for insurers and agents. Regulators vowed to keep a close eye on sales practices and did not rule out reopening the new AG 49A should they see abuses resume.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
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