State Regulators Back At Work Reforming IUL Illustration Rules

By John Hilton

State insurance regulators might be preoccupied with the COVID-19 pandemic, but efforts to tighten up regulation of indexed universal life illustrations is ongoing.

A comment period closed Thursday on draft changes to Actuarial Guideline 49 proposed by the American Council for Life Insurers. The Life Actuarial Task Force is scheduled to discuss the draft and comments during a May 14 conference call.

In a letter sent Friday, Birny Birnbaum, executive director of the Center for Economic Justice and an NAIC consumer advocate, said the ACLI draft will not solve any of the issues with unrealistic IUL illustrations.

"The ACLI proposal is a complex extension of an already complex set of AG 49 calculations that will move illustrations further away from the core purposes of an illustration -- to demonstrate how a product operates and to provide realistic expectations," Birnbaum wrote.

The IUL Illustration Subgroup has a mandate to clamp down on multipliers and bonuses that critics say enable insurers to get around AG 49, approved in 2015.

In late October, the Life Actuarial Task Force voted to add language firming up 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.

Since then, regulators and industry representatives have struggled to find ways to comply with that directive.

How High?

The ACLI claimed its proposal will keep the maximum illustration rate between 5% and 8%, a target area subgroup chairman Fred Anderson, deputy commissioner of insurance for Minnesota, set in earlier calls.

But Birnbaum claimed the ACLI language merely closes some loopholes while creating others.

In particular, the ACLI proposal "encourages the use of data-mined proprietary indices instead of discouraging such practice," he wrote. "In addition, the ACLI proposal introduces new discretion for illustration actuaries that lessen accountability to consumers and regulators and promote disparity of illustration results across similar or identical product design."

Finally, Birnbaum suggested that an industry trade organization should not be providing language for its own rules.

"Given the nature of a market in which competition rewards the bad players, it seems bizarre for regulators to defer the development of market problem solutions to those players benefiting from the current abuses," he wrote.

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.