At the November 10th, 2020 Life Insurance and Annuities “A” Committee meeting, Center for Economic Justice’s (CEJ) Executive Director Birny Birnbaum got another 20 minutes of airtime claiming, “Life insurance and annuity illustrations obscure instead of explaining, the operation of the policy or contract.” He reviewed a lengthy presentation during the meeting. (presentation found here). Birnbaum contends that life insurance and annuity illustrations are deceptive about the risks and benefits.
Typically, Birnbaum attacks the life industry alone, but this time he indicted the regulatory structure along with the industry. The controversy associated with life insurance and annuity illustrations is in part due to product advancement and the use of proprietary indexes by the life industry. The original life illustration model 582 was adopted by the National Association of Insurance Commissioners (NAIC) in 1995 after a lengthy and antagonistic process before indexes were contemplated.
Birnbaum suggested five changes to illustrations:
- Simpler Explanation about How the Product Operates
- Apples-to-Apples Comparison of Product Accumulation with Alternative Investments
- Show the Cost and Value of Insurance
- Show Meaningful Measures of Risk and Return
- Set Realistic Expectations for Policyholders
He also outlined a laundry list of recommended consumer protections and prohibitions by insurers. In response, Iowa Insurance Commissioner Doug Ommen, Vice-Chair of the “A” Committee noted that the NAIC already adopted a regulation to limit the illustration of indexes in existence for less than 10 years.
Additionally, during the NAIC summer meeting, the Executive Committee adopted Actuarial Guideline 49-A which restricted indexed universal life illustrations by prohibiting IUL products with multipliers and bonuses from illustrating a better rate than IUL products without the multipliers and bonuses.
After the meeting, Birnbaum urged the Committee to establish a charge and working group to address life and annuity illustrations and disclosures in conjunction with one another. He also listed several next steps. It is unclear whether the “A” Committee will move forward on CEJ’s agenda, but the industry can expect continued scrutiny by state regulators.
The (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia, and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.