Insurer: Add full in-force life insurance illustration to regulation remix

A state regulator panel has closed an initial comment period on potential changes to the overall life insurance illustration regulation.

Any changes to the regulation would be a highly sensitive, extended process difficult to complete, regulators say, so the Indexed Universal Life Illustration Subgroup is proceeding cautiously.

The advertised comment period only asked for revision "concepts" for Model Regulation #582. The subgroup received five comments.

Transamerica used its comment letter to ask the subgroup to loosen the rules for in-force illustrations.

"In most states, insurance companies are prohibited from providing customers in force illustrations at then-current credited rates and charges under commonly occurring circumstances," wrote Andrew DeMarco, head of life solutions for Transamerica. "The information in these illustrations is something that customers want and that companies want to provide."

Companies are not allowed to provide any illustration, including an in-force illustration, that fails either the lapse-support test or the self-support test, according to the model regulation. Many in-force products, such as universal life, fail at least one of these tests at current credited
rates and charges, DeMarco noted.

Establish guidelines

Other comment letters from industry representatives echoed suggestions made by the American Council of Life Insurers. ACLI proposed laying out "guiding regulatory principles" to help manage the process.

The trade association suggested that illustrations:

• Demonstrate both the benefits and risks of product features to promote consumer understanding;

• Are product-neutral, so that any changes to the Model create a level playing field between products;

• Are adaptable to new product development to ensure that consumers are provided
innovative products that adapt to current market environments.

The Coalition of Concerned Insurance Professionals submitted the most detailed comment letter filled with eight pages of technical changes to the regulation. The coalition grew from initial comment letters authored by Sheryl Moore of Moore Market Intelligence and Bobby Samuelson of The Life Product Review. It now encompasses 12 "independent insurance professionals," Samuelson said last month.

But the subgroup showed no appetite for the coalition's "quick fix" proposal for AG 49-A.

Mounting problems

Creating Model Regulation #582 was an acrimonious process that took years before the National Association of Insurance Commissioners adopted it in 1995. Indexed universal life products continued to evolve and the NAIC adopted Actuarial Guideline 49 in 2015, but insurers quickly got around it by offering IUL products with multipliers and bonuses.

That led to AG 49-A, adopted in late 2020 after this LATF directive: "designs with multipliers or other enhancements should not illustrate better than non-multiplier designs." But regulators and consumer advocates say the abuses continued.

Last month, the subgroup put forth  a "quick fix" to address faulty illustration problems within the AG 49-A.

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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