Regulators resolve to check up on products for illustration integrity

NAIC regulators are looking at products for evidence of illustrations gone awry.

By John Hilton

State insurance regulators are tired are trying to keep up with life insurers that quickly skirt attempts to tamp down illustrations.

Instead of further rulemaking, regulators are going directly to the products. The Indexed Universal Life Illustration Subgroup is "looking at specific company examples" of both IUL and annuities that use illustrations, said Fred Andersen of the Minnesota Department of Commerce, chairman of the subgroup.

Anderson spoke Sunday during the National Association of Insurance Commissioners' spring meeting in Phoenix.

"The illustration subgroup has spent the last ten years continually making rules and changing the rules to kind of catch up to what's going on," Andersen said. "But we decided to step back and look at what's actually being presented to consumers."

In response to a later question, Andersen said regulators are "starting to notice things in our product reviews" and having better communication between states. Regulators might finally be getting a handle on illustrations, he added.

"It seems like we've got most of the way there as far as getting illustrations where regulators feel comfortable," Andersen told committee chair Judi French, director of the Ohio Department of Insurance. "We've done some analysis and talked to a lot of people who study things and it will never be perfect, but I think that's at a manageable place where we can not start thinking about a next round of illustration guideline changes."

NAIC regulators are candid about not wanting to reopen the overall illustrations model because it would likely be a years-long process. The current illustrations regulation was adopted in 1997 after a similar process. And that was before indexed universal life insurance even existed.

Instead of a full rework, regulators settled on Actuarial Guideline 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, followed by AG 49-B in 2023.

The NAIC's Indexed Universal Life Illustration Subgroup hinted at a full illustrations rework late in 2022, opening a comment period that only asked for revision "concepts" for the model. That effort went nowhere and the subgroup's 2024 work charges revealed no plans for illustrations.

No charge, no meetings

The illustrations subgroup has not met recently and has no meetings scheduled. Regulators have not addressed the issue in months, approving a 2024 list of charges, or goals, in the fall with no mention of a different strategy toward illustrations.

"Obviously, our goal is to help ensure that companies are not overpromising or understating downside risks of products," Andersen explained. "Regarding what potential results could be, it could be addressing company specific issues with companies. And it also could be eventually developing recommendations for rulemaking."

Consumer advocates apply frequent pressure on NAIC regulators to address illustrations that frequently promise double-digit returns. During the organization's December fall meeting, Birny Birnbaum and Brenda J. Cude urged regulators to update the life insurance illustration regulation.

"Clearly there needs to be a reengineering of illustration regulations for a consistent approach for both index annuities and life insurance," said Birnbaum, executive director of the Center for Economic Justice. "We need to stop the incentives for illustration unrealistic accumulation competition, eliminate hypothetical historical results and projection of non-guaranteed outcomes."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.