1990s - NAIC - Insurance Regulators - Snippets

  • 1991 0717 - NAIC Testimony - Terence Lennon, New York Department of Insurance - 17p
    • (p4) - Individual Products
      • The most important feature of the new individual products was the unbundling or separation of the fund accumulation from the mortality function.
      • In this way the consumer could be shown his or her fund and the earnings credited to it as a separate element.
      • Universal life and a variety of variable life and annuity products were the chief vehicles in this effort.
    • (p5) - The key risks for these products were the spread risk and the potential disintermediation risk in the event they were surrendered in response to interest rate changes.
      • Traditional life company management structures were not well suited to managing these risks. (p5)

1991 0717 and 0724 - GOV (House) - Life Insurance Solvency Issues, (CSPAN) - Insurance Insolvencies, (NAIC) - The Impact of Junk Bonds, Real Estate and Mortgages on the Life Insurance Industry, Cardiss Collins (D-IL)  ---   [BonkNote]

  • We are seeing a real crisis in confidence:
    • That, in my mind, is probably the worst thing that could happen.   
    • There is not a company in the country that can stand runs that Commissioner Weaver was talking about, where people ask for $1 billion in policy loans and surrenders in a 2-week period.  (p13)

--  William McCartney, Director of Insurance, State of Nebraska and Vice President, National Association of Insurance Commissioners (NAIC)

1991 0729 - GOV (House) - Regulation of Insurance Companies and the Role of The National Association of Insurance Commissioners (NAIC), Ben Erdreich (D-AL) - [PDF-286p, VIDEO-?]

  • (p33) And, Mr. Chairman, as they say in baseball—and I understand you have an interest in baseball these days—you cannot tell the players without a scorecard?
    • Well, it is far too easy for consumers these days to lose track of balls and strikes on how their insurance product works for them, and that is leading to the type of problems we have heard about this morning.

--  NAIC - Statement of David J. Lyons, Commissioner, Iowa Insurance Department, And Chairman, Disclosure Task Force, National Association of Insurance Commissioners

1993 0525 - GOV (Senate) - When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  ---  [BonkNote]

  • One regulator [W. Harold Phillips (Hal), Senior Life Actuary - CA) summarized the problem in his department - Attachment Two-A:
    • Misleading illustrations are structured as inducements to buy rather than helpful tools to understand the workings of the product or as a comparison between products of competing companies. 
    • In addition, many purchasers as well as agents do not understand what an illustration is and what it is not.
    • Most agents, companies and actuaries agree that there is a problem and that something needs to be done.
    • The industry appears to be in gridlock on the matter.
    • Current regulation of illustrations is very weak.
    • Companies and agents can do pretty much as they please.

1993 Proc. IB 789. - Life Insurance Illustrations Model Regulation - Proceeding Citations

  • "People are buying the wrong things," said J. Robert Hunter, the president of the National Insurance Consumer Organization, who is about to become the Texas Insurance Commissioner.
    • "That's because the disclosures are incredibly arcane and easy to manipulate."

1993 1030 - NYT - Insurance; Confusion Over Policies Leads to Talk of Change, by Leonard Sloane - [link]

The working group's concern was how to bring about a change without damage to the market place.

1993-4, NAIC Proceedings - Life Disclosure Working Group - (A) – NAIC

  • Chapter 1, Life Insurance and the Question of Solvency Salvatore R. Curiale, Superintendent of Insurance, New York State Insurance Department
  • I am not sure there are any serious issues confronting the life insurance industry these days, unless of course you consider solvency, liquidity, junk bonds, deteriorating mortgage and real estate portfolios, risk-based capital requirements, asset mix, separate accounts, credit risk, Congressional inquiries, shrinking surplus, demutualization and more.
  • ⇒  What happened?
  • ⇒  How did a boring, straight-forward business become so interesting and so difficult to regulate?
  • During the past decade the life insurance industry has undergone dramatic changes.
    • A business that was  previously characterized by stable risks and generous profits has been transformed into one marked by instability of risk and evaporating profit margins.
  • The change was precipitated by the dramatic rise in interest rates in the late 1970s and early 1980s.
    • The relatively high rates offered by money market funds, Certificates of Deposit and other similar products prompted insurers to develop insurance alternatives that shifted the marketing emphasis from security to, at least partially, rate of return.

1993 - Book - Financial Management of Life Insurance Companies, edited by J. David Cummins

  • But for now, Mr. Lyons said, "the public's and the politicians' perceptions of sales abuses have been so raised that people are ready to accept more radical approaches."
    • [Bonk: David Lyons = 1990-1994 - Iowa Insurance Commissioner

1994 0308 - NYT - Regulators Seek Limits on Insurer Sales Pitches, by Michael Quint  ---  [BonkNote]  ---  [link]

  • Commissioner Willis (DC) said the trouble with disclosing that the premium might at some point "resume" is that the premium never stopped.
    • It is misleading to make a consumer think the premium is not being paid.
    • [Bonk: Vanishing Premium, Policy Mechanics, Cash Flow, Work)

1994-3, NAIC Proceedings

  • Let's go back to the question of understandability.
    • With no standardized format being utilized, many of the illustrations currently in use are far too complex for the average consumer or applicant to understand.
    • In many cases the selling agent does not understand what he is presenting, and this needs to be addressed.

--  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

  • Bob Wright (Virginia) said the Society of Actuaries report referred to the fact that companies said they had no control over what agents did.

1994-4, NAIC Proceedings

⇒  1991-1992 - SOA - Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries  ---  [BonkNote]  ---  142p

  • The working group did not come to a conclusion on whether to include the sensitivity analysis and decided that discussion at the next meeting would be helpful.
  • Commissioner Wilcox said he was impressed** by the comments of those on the working group who were not actuaries that sensitivity adds more confusion than enlightenment.
    • He said as an actuary, if he were buying a policy, he would want to see what 1% less interest produced.
    • He said variations other than interest would be more difficult. (p674)

1994-4, NAIC Proceedings

--  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

**[Bonk: I was curious about use of the word "impressed."  I looked it up on thesaurus.com and found that it is related to "affected" and "distressed" --  which would make sense in that sentence.  Thoughts?]

  • If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.
  • Obviously, there are two adjustment points whereby that can be accomplished.
    • One is that you can change the outcome to match the expectations.
    • The other is to change the expectation to match the outcome

--  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

  • Daphne Bartlett - California Actuary:
    • ... suggested grading in the interest rate over a period of time to standardized assumptions.
    • ... said that this would be an appropriate substitute for the sensitivity index. 
    • ... saw several advantages.
      • It eliminated the portfolio versus new money problem because one could grade down, and the other might need to grade up.
    • ...said the numbers generated by the illustration would be more realistic...
    • ...said this would minimize the need for in-force illustrations.

1995-1, NAIC Proceedings

  • Where were the people that wanted to do that when we were going through the process.
  • Folks, we've been talking about this for a year.
    • We have taken input from anyone and everyone.
  • If we had any sense that we could have had ten-year projections only, if we had any sense that we could have graded interest rates and that it would have gotten any support, believe me, we would have done it.
  • ⇒  Where were you people when we were developing the model?

--  Thomas C. Foley, North Dakota, Regulator/ Actuary

1995 - SOA - Sales Illustrations, Society of Actuaries - 14p

  • Mark J. Greene, FSA. MAAA, Supervising Actuary, New York State Insurance Department
    • What I noticed was there is a requirement for in-force illustrations, and people may have thought they bought one thing and whenever you have to give them an in-force illustration with a current disciplined scale, they're going to realize they bought something else.
      • I think many companies will have serious problems with policyholder retention.

1995 - SOA - Practical Illustrations and Nonforfeiture Values, Society of Actuaries - 14p

  • 1996 0613 - NYT - Insurers Lobby, Quietly, to Alter Consumer Law, By Clifford J. Levy - [link]
    • Agent Commissions, New Law in New York
    • Asked why consumers were not involved, Mr. Muhl said: "I am not sure that you are aware of one of my roles. One of my tasks is to represent the consumer's interests. So the consumer was well represented."
    • Consumer groups scoffed at that.
      • "I don't think it makes sense to override these controls without our side having an opportunity to say, 'Hey, there are some things that we want,'" said Robert Hunter, a former insurance commissioner in Texas who is director of insurance for the Consumer Federation of America, a coalition of 250 consumer groups.
      • "They knew that they could have worked with us," Mr. Hunter said. "They have just come in and tried to slam-dunk this."
    • Edward J. Muhl = Superintendent of the State Insurance Department
  • They are complaints about things that we can’t do anything about because the contract might be a Universal Life type product with Nonguaranteed Elements, and there is no regulatory framework to deal with those issues.
  • Those complaints just fall by the wayside because there is nothing that can be done.

-- Larry Gorski, Chief Actuary, Illinois Department of Insurance

1996 - SOA - Nonforfeiture Law Development, Society of Actuaries - 23p

  • I think you're right, Walter, in a significant respect.
    • The fact is that a minority would be inclined to make those overly aggressive assumptions and produce unsupportable illustrations,...
    • ...but every time one company would take that stand and use assumptions for the illustration that don't make sense, there's another company that competes with them and feels compelled to play in the same ball park and then another company that competes with them.
    • In the absence of regulation on those who would be most aggressive, the problem grows, but your point is well taken.
    • [Bonk: Walter = Walter Miller]

--  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

1996 - SOA - Current Developments Surrounding Regulations and Standards of Life and Annuity Products, Society of Actuaries - 18p

  • Commissioner Wilcox said that he admitted that the working group had gotten a little sloppy on its terminology, but it had been clear all along that the working group was focusing on sales.

--  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group - (A) - NAIC

1996-4V2, NAIC Proceedings

  • The actuary cannot and should not attempt to estimate or predict the future.
    • This would reduce actuarial work to guessing.
  • What then are actuarial assumptions?

1998 01 - SOA - Actuarial Futures - Actuarial Assumptions and the Future, by W. Harold Phillips [Hal], Senior Life Actuary at the California Department of Insurance, Society of Actuaries - 4p

  • I'm going to have you listen for a few minutes. 
  • I have a theory that the difficulties the life industry faced with illustrations, including the billions lost in lawsuits, stemmed from the lack of understanding of what a scale of illustrated dividends or nonguaranteed elements is and is not.
  • I have assumed there was consensus, at least within the actuarial profession, on the definition of an illustration. I'm not even sure of that today.
  • A solution to the illustration difficulties lies, first, at getting at the heart of a problem.
    • The problem, in my opinion, is lack of understanding of the definition of an illustration.
    • The solution lies in educating the actuarial profession, companies, sales force, and the public on what an illustration is and what it is not.
  • I place a large share of the blame for the difficulties in the industry with our profession for not initiating and carrying through such education, but it's not too late.

--  Hal Phillips, aka William H. Phillips, a senior life actuary with the California Department of Insurance

1998 - SOA - Current Issues in Sales Illustrations, Society of Actuaries - 26p