Life insurance illustration rules on the clock as full rework looms

Updated guidance for indexed universal life illustrations takes effect May 1, but a major overhaul of life insurance illustration regulation is coming, a Symetra executive said Monday.

But it won't be too long before the National Association of Insurance Commissioners reopens the overall life insurance illustration regulation, added Gregory Rohtstein, assistant vice president, life product management at Symetra.

Both the short- and long-term illustration rule efforts are big variables when it comes to sales. The National Association of Insurance and Financial Advisors hosted a webinar Monday diving into the latest news on illustration rules.

Rohtstein was accompanied by Steven Patrizio, regional vice president for Symetra, and Ryan Mattern, advanced planning specialist for Modern Life, a a tech-enabled life insurance brokerage.

"There's been a lot of changes to IUL and how they illustrate," Rohtstein said.

AG 49-B is here

In the short term, IUL sellers need to be concerned with Actuarial Guideline 49-B, recently adopted by the NAIC. AG 49-B changes are set to take effect on May 1.

AG 49-B states that no index account can be illustrated above the benchmark index account and the new maximum illustrated rate must be inclusive of any bonuses, Rohtstein explained.

"If your maximum illustrated rate is six [percent], and you have a bonus of 1%, you're technically effectively illustrating seven," he explained. "What [AG 49-B is] saying is you can't add that additional bonus to the 6%. You either have to lower your maximum illustrated rate to five and then you can illustrate up to that six, or you don't offer a bonus."

In addition, AG 49-B limits illustrated rates to a maximum of 145% of whatever an IUL portfolio is earning.

AG 49-B would not have been needed if AG 49-A or the original AG 49 had done the job of reining in IUL illustrations.

"We used to see illustrated rates in the 10 [percent], 12, 14 at times from certain carriers, and there was no real way to determine how they were getting to that number," Rohtstein recalled.

The NAIC wrote and adopted the overall life insurance illustration model in an acrimonious process that concluded in 1997, well before IUL existed. Regulators settled on AG 49 in 2015 as the first check on IUL illustrations.

Insurers quickly got around AG 49 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.

No quick pivot

But AG 49-B should calm the waters for a little while, Rohtstein said. When AG 49 came out, carriers quickly pivoted to multipliers and buy-up accounts. After AG 49-A, carriers moved on to bonuses in a bid to continue illustrating IUL at high numbers.

"We don't see a quick answer necessarily to the AG 49-B," Rothstein said. "So, we're not seeing a lot of new products being filed."

But regulators and industry executives are aware that a full redo of the life insurance illustration model #582 is looming on the horizon. The NAIC's Indexed Universal Life Illustration Subgroup took tiny steps late in 2022, opening a comment period that only asked for revision "concepts" for the model.

The subgroup received five comments, most of them echoing suggestions made by the American Council of Life Insurers for "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.

Rohtstein is certain it will not be a quick or easy process.

"That's a much larger undertaking than changing an actuarial guideline," he noted. "We're talking probably two or three years minimum to rewrite that regulation. Things don't move fast in this industry. Certainly with something like this, we'll have a lot of voices, a lot of cooks in the kitchen, really to make sure that it gets done and done the right way."

InsuranceNewsNet Senior Editor John Hilton 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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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.