A significant split opened up this week on applying tightened indexed universal life insurance illustration rules to in-force policies.
A National Association of Insurance Commissioners' subgroup is still working through the details, but has a mandate to clamp down on multipliers and bonuses that critics say enable insurers to get around Actuarial Guideline 49, approved in 2015.
Whether it's fair to apply the final changes to in-force illustrations produced much disagreement during an IUL Illustration Subgroup conference call this week.
In late October, the Life Actuarial Task Force voted to add language tightening AG 49, leaving the details to the subgroup. The key wording is this: multipliers or other enhancements should not illustrate better than non-multiplier designs.
'Create More Confusion'
Some say different illustrations on the same product will only confuse consumers.
Vincent Tsang of the Illinois Department of Insurance said clients would be confused if their agents came back with a new illustration on a policy they already bought.
Birny Birnbaum, executive director of the Center for Economic Justice, said the issue has already been decided by NAIC precedent, which requires application to in-force policies.
“The whole purpose of these changes is to stop what people feel are misleading illustrations," Birnbaum said. "So under what scenario would you say ‘Well, you’ve got a misleading illustration to begin with, but we don’t want to confuse you, so we’re going to let the company continue to provide a misleading illustration on an ongoing basis’?"
In-force illustrations are more than just a sales tool, said Sheryl Moore of Moore Market Intelligence.
"It’s not just a tool that’s used for replacement of policies; this is not just about a sales presentation," she said. "And it’s really not much about how does this product work. It’s about managing the expectations of an interest-sensitive life insurance policy, and properly servicing the contract. This is a very, very important tool for managing policies that have already been sold. So knowing how to properly fund that policy is very, very important and that decision [on in-force illustrations] lies in all of your hands.”
The disagreement extended to insurers, with Securian and Global Atlantic submitting comments in favor of extending new illustration rules to in-force policies. The trade associations were uniformly opposed to the idea.
Attorney Scott R. Harrison, who represents Lincoln Financial Group, Pacific Life and Sammons Financial Group, said clients deserve an "apples to apples comparison" when assessing how in-force policies are performing. He also pushed back against the idea of misleading illustrations.
"I’m certainly not aware of anything regulators have found on illustrations that are misleading," he said. "That seems to be just an allegation that is just hanging in the air."
Nationwide offered a potential "middle ground" sought by some regulators: a "one-year phase-in" for in-force policies.
The subgroup concluded a 45-minute discussion on the topic by agreeing with Chairman Fred Anderson's plan to delay a vote on the in-force decision until the NAIC Fall Meeting in Austin Dec. 7-10.
After LATF handed down its mandate to clamp down on multipliers and bonuses, several insurers pointed out that changes were not that simple.
The proposed language "appears to allow for the continued illustration of certain benefits related to charged-for indexed features, including multipliers," and for benefits related to buy-up indexed accounts, reads a letter from Harrison.
Regulators debated with industry representatives proposed tweaks to the formulas set out by AG 49 for IUL illustrations. Several ideas were discussed as options to produce a fairer illustrated scale for IUL products.
Regulators concluded with a series of topics that they will accept comment on until Nov. 25. The four topics are:
- Section 3.C., to address a potential concern that product enhancements with charges could be interpreted as a benchmark.
2. Section 4.E., to ensure relevance and consistency with Section 5 in light of changes to Section 5 and to ensure the coordination with Sections 4A and 4B to produce a clear and appropriate calculation.
3. Section 5B (new part of Section 5), to ensure:
a. Inappropriate double counting of credits or charges is avoided;
b. Clarity is added, including defining the new term “net” in 5B(A); and
c. Cap buy-ups are appropriately addressed.
Supplemental math examples may be provided to add clarity.
4. Section 6B to ensure the 100 basis point loan limits is applied as intended.
Comments may be sent to Pat Allison at [email protected] by close of business Nov. 25.
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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