1992 - SOA - Life Insurance Sales Illustrations - Society of Actuaries - 16p

  • 1992 - SOA - Life Insurance Sales Illustrations, Society of Actuaries  ---  [BonkNote]  ---  16p
  • The agent, as a result of not understanding the illustration, may misrepresent the product to the consumer.

--  Judy Faucett

  • The bottom line is, however, that we need to do things that will help the consumer understand what is guaranteed and what is not guaranteed in the policy.

--  Judy Faucett

  • Some of the comments that we have heard from regulators about the illustration situation suggest feelings of, if not outright despair, growing frustration.
    • A couple of them spoke sadly of the futility of regulating an illustration when the real issues involve the agent or the company.
    • Larry Gorski of the Illinois department mentioned that in states that do not regulate advertising or promotional materials, misleading statements can be rampant in those materials even if the illustrations are made pure.

--  Benjamin J. Bock, Transamerica Occidental

  • We are a research body and an education body to help educate the public on why these are not guarantees, and how they should be looking at these in terms of flexibility.
    • I'm not talking about numbers now.
    • I'm talking about perceptions and concepts regarding the nonguaranteed elements of a contract.

--  Barbara Lautenheiser

  • A lot of references have been made to some of the more esoteric points, and also the need to do something in a short time frame before the regulators do something that we will not like very much.

--  P. Randall Lowery

  • But what kinds of things led to the Armstrong investigation?
    • Back at the turn of the century, many companies were illustrating very large 20th-year dividends, with the thought that they wouldn't really have to pay them because not many people would be around to collect the dividends or to be upset at lower dividends.
  • There were at least a couple of problems with this.
    • For one thing, they weren't setting up liabilities for those deferred dividends.
      • We now have line 8 on page 3 of the NAIC Annual Statement to deal with that.
    • Another problem was that the actual dividends often turned out to be considerably less than illustrated.
      • Yet some of the companies, even as they were paying those lower dividends, were still illustrating the higher ones on new business.
    • In simplest terms, people were paying for insurance on the strength of quasi-promises, the details of which they didn't fully understand.
    • Ultimately the regulators intervened and stopped such products from being sold at all, at least in New York.
  • The question, of course, is whether that sort of thing could happen again.
    • There are more recent parallels as well.
    • One of my coworkers recently mentioned to me that back in the late 1940s and early 1950s, it was a common assignment for fledgling actuarial students to compose explanatory letters to policyholders who had written in to complain that the dividends on the 20- or 30-year endowments they had bought had not materialized.
      • This was, of course, due to the low interest rates of the 1930s and 1940s.

--  Benjamin J. Bock, Transamerica Occidental