NAIC panel inching forward on life insurance illustration reg revision

State insurance regulators inched closer to reopening the overall model regulation governing life insurance illustrations today.

During a conference call, members of the Indexed Universal Life Illustration subgroup agreed to come up with some ideas for targeted revisions to the Life Insurance Illustrations Model Regulation (#582).

Creating model regulation #582 was an acrimonious process that took years before the National Association of Insurance Commissioners adopted it in 1995. In the decades since, insurers have come up with various product features that have rendered illustration guidelines ineffective, consumer advocates say.

In particular, indexed universal life products with creative features are illustrating at levels regulators consider unrealistic. That led to Actuarial Guideline 49 in 2015 and its sister AG 49-A in 2020.

The current two-part regulation update effort will include a "quick fix" to AG 49-A, explained Fred Anderson of the Minnesota Department of Commerce, chairman of the subgroup.

Not everyone on the call was happy with the pace of the effort to fix illustrations.

Birny Birnbaum is executive director of the Center for Economic Justice. He objected to restricting the #582 update effort to targeted revisions.

"We don't want any arbitrary limitations on opening up the model," he told Anderson. "We think that there are enough problems with illustrations generally that trying to tweak one or two features in the illustration model is not going to address the situation. It's not going to address any of the problems that distinguish illustrations for life insurance and annuities versus any other type of investment product."

The subgroup wants to avoid having to constantly update AG 49, Anderson countered, while undertaking a mammoth illustration retool.

"It's possible that there could be medium-term and long-term projects," he added. "I think we open up the whole model reg [and] we're probably looking at three years of work to address the things you mentioned and address the IUL-specific issues that are driving this request."

'I'm concerned'

One problem regulators are running into, Anderson said, is a lack of vision. For example, a company might be using a hypothetical lookback index to create one rate of growth, and regulators point out that it isn't a fair projection. Likewise, an index using a formula to determine a futuristic rate of return is criticized as too complex for consumers to understand, Anderson noted.

Regulators need to initiate the illustration update discussion with clearer ideas on their goals, he explained.

"I'm concerned that we're going to say, 'Let's open the model,' and then nobody's going to have a realistic idea of how to address that," he said. "So that's another reason why I'm just hesitant. ... It seems like we should have at least some idea of some of the fixes that would be needed."

The IUL Illustrations subgroup meets Wednesday and will continue discussions on both the AG 49-A quick fix and potential #582 updates.

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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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.