NAIC Urged To Do Full Review Of Illustrations; Regulators Demur

The National Association of Insurance Commissioners creates model laws for states to pass.

Insurance commissioners tabled a proposal today to create a working group with a charge aimed at completing a comprehensive and coordinated review of annuity and life insurance illustrations.

Birny Birnbaum, executive director of the Center for Economic Justice, is proposing a Life Insurance and Annuity Illustration Working Group. The new group would take the place of the Annuity Disclosure Working Group, but also pick up parts of illustration-related work assigned to at least three other working groups, Birnbaum said.

"NAIC model regulations regarding life insurance and annuity illustrations and advertising permit – and in some cases, require – misleading, confusing and/or deceptive information be provided to consumers in the form of illustrations," Birnbaum said in a letter to insurance commissioners.

The Life Insurance and Annuities Committee held a conference call today and approved a list of 2020 charges for its working groups. Chairman Doug Ommen, Iowa insurance commissioner, noted that the committee can take up charges at any time, but did not have enough time to consider Birnbaum's proposal.

“Alabama is very supportive of the CEJ proposal, but we don’t believe today is the day," said Steve Ostlund, actuary with the Alabama Department of Insurance.

Some of the working groups are in the middle of work, including accepting comments on illustration issues, noted Michael Lovendusky, vice president and associate general counsel for the American Council of Life Insurers.

The CEJ proposal was just brought to the attention of ACLI on Friday, he added. The proposal is better off being discussed at the NAIC Fall Meeting in Austin, Texas Dec. 7-10, Lovendusky suggested.

'Diametrically Opposed'

The new group would take over the work of separate working groups trying to fix problems with life insurance and annuity illustrations. While those efforts have been productive, Birnbaum said, the groups are taking "diametrically opposed approaches."

He offered a couple of examples:

The annuity illustration rules do not include a cap on crediting rates. Life insurance illustration rules do require a cap.
Annuity illustration rules give consumers a sequence of return risk. Regulators require no sequence of return risk with life insurance illustrations.

"The approaches to illustrations for life insurance and annuities – particularly for indexed products – are radically inconsistent even for products that operate in a similar fashion," Birnbaum wrote.

At the moment, the Life Insurance Illustrations Working Group is trying to crack down on wayward indexed universal life insurance illustrations via an amendment to Actuarial Guideline 49.

The tentative change -- which still needs final approval -- would bar IUL illustrations with bonuses or multipliers from illustrating higher than IUL products without these features.

Meanwhile, on the annuity side, the Annuity Disclosure Working Group is studying a proposal to increase the time indexes must be in existence to be used in annuity illustrations from 10 to 15 years. Regulators are concerned that consumers are being misled by unrealistic indexed annuity illustrations.

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.