“More realistic” guidelines for the illustrations insurers, agents and brokers can use in marketing indexed universal life insurance (IUL) products was approved today by the full National Association of Insurance Commissioners (NAIC).
The decision clears the way for implementation of the new guidelines on Sept. 1. It is intended to address existing regulatory loopholes that allow companies to illustrate unrealistic rates of return for indexed universal life products - in some cases, rates as high as 10 percent.
The guideline will result in what are called more reasonable illustrated rates below 7 percent for products. It will require that companies be able to support those rates for the life of the product.
Agents and advisors would provide illustrations to the customer that either the insurance company produced for the agent or that the agent produced using company-approved software. The company is responsible for the format and content of the illustration.
Provisions detailing information on policy loans and establishing additional standards will go into effect for all new business and in-force life insurance illustrations on policies sold on or after March 1, 2016. The rule will place a limit on loan leverage, which will prohibit companies from offering low borrowing rates while simultaneously illustrating high rates of return in order to induce consumers to borrow against their policies.
The guideline has broad support from the life industry including a vast majority of IUL writers, regulators and consumer groups alike. It was mainly crafted by actuarial staff of state regulatory agencies.
During the debate leading up to adoption by the Life and Annuity Committee June 4, some insurance companies some companies and regulators argued that the guideline requires additional revisions and that its adoption should be delayed.
Prompt action was pushed by a coalition of mutual and stock companies that included Northwestern Mutual and MetLife, as well as the American Council of Life Insurers and the NAIC’s consumer representatives.
“The guidelines approved today by the NAIC are the result of a considerable collaborative effort between regulators and industry,” the ACLI said in a statement issued after the full NAIC approved the guidelines in a voice vote during a conference call today.
The ACLI said the new illustrations “offer uniform rules for the development of illustrations of indexed universal life insurance products that will benefit consumers.”
In particular, the ACLI said, the the guidelines provide guidance in determining the index-based crediting rate for the currently payable scale and the disciplined current scale; limit the policy loan leverage shown in an illustration; and require additional consumer information (side-by-side illustration and additional disclosures) that will aid in consumer understanding.
“Moreover, the guidelines would set a maximum rate that could be illustrated based on a standardized formula. The maximum rate could vary depending on product design,” the ACLI statement said.
David Mattux, Texas insurance commissioner and chairman of the Life and Actuarial Task Force (LATF), made clear that fast-track implemention of the more realistic guidelines is only the first step in ensuring that marketing materials adequately reflect the potential yields IUL products offer policyholders.
He said the NAIC is creating a whole new working group, the Actuarial Subgroup, whose role will be to ensure that illustrations and other marketing materials for the fast-growing IUL products are updated continually in order that consumers know what they are buying in an IUL product.
Creation of the new group was a part of an agreement with NAIC consumer advocates for further work on IUL marketing materials going forward that paved the way for fast-track approval of the new rule, known as Actuarial Guideline (AG) 49.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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