2026 0331 - NAIC - LIAIWG - Comment Letters - Life Insurance and Annuities Illustrations Working Group - (A)

  • Academy Comment Letter - Donna Megregian
    • The LPrC observed the lack of adoption of the amended Model 245 and would benefit from understanding why it has not been adopted by a majority of the states.
    • We also seek clarification of whether the 10%-25% return ranges were observed under Section 5 (disclosure) or Section 6 (illustration), or both?
    • we would discourage illustrations being utilized as performance indicators or trying to modify illustrations to set expectations for consumers. Taking note of how life insurance illustrations were designed, and were meant to demonstrate how the product works, so too were annuity illustrations designed under the amended Model 245. Illustrations are not predictions of performance and, based on our understanding, were never intended to be. We suggest leveraging different means, such as the Annuity Buyer’s Guide or other supplemental sales tools to assist with demonstrating returns from indexed annuities.
    • Recognizing that consumers learn in various ways, we encourage collaboration with consumer groups to explore how visuals and other media might be leveraged to understand the volatile and variable nature of returns from product features. For example, the inclusion of graphs that show the returns of the index over a period of time may help consumers quickly identify volatility versus reading charts of numbers or disclosures .
    • We caution that providing consumers with any level of confidence in future returns for products in general, especially indexed and variable products, misrepresents the predictability and variability of the returns. We encourage focusing on the variability of past returns to highlight the nature of how the feature works. We also encourage diligent management and review of a policy by the policy holder to assess how actual returns have impacted the policy, and if adjustments are needed for the policy to continue meeting the needs of the policy holder.
  • Cannex Comment - 6p
    • p1 - The current illustration framework, as established in the NAIC Annuity Disclosure Model Regulation, provides a structured approach to presenting product performance to consumers. However, the interaction of three factors— (1) the renewal rate assumption, amplified by premium bonus designs; (2) the historical scenario selection methodology; and (3) the inconsistency between current strategy rates and the economic environment of the illustrated scenario— produces illustrated returns that can materially exceed reasonable consumer expectations.
    • In the short term, enhanced disclosures and supplemental reduced-rate scenarios can improve transparency within the existing framework.
    • In the long term, modernizing the scenario selection methodology toward standardized, forwardlooking representative scenarios, requiring economic consistency between strategy rates and illustrated scenarios, and strengthening standards for newly developed indices will be necessary to ensure the illustration framework keeps pace with evolving product designs and index innovations.
    • p3 - The Renewal Rate Assumption and Premium Bonus Interaction
      • Why this is misleading: In reality, initial-term strategy rates are not guaranteed to renew at the same level. Carriers routinely set more attractive rates for the initial term as a competitive marketing strategy, with the expectation and pricing intent that renewal-term rates will be lower. The current regulation does not distinguish between an introductory rate and a sustainable renewal rate.
    • p4 - Inconsistency Between Current Strategy Rates and Historical Scenarios
    • p5 - Recommendations to the Working Group
      • Short-Term Approaches
        • 1. Require Disclosure of Renewal Rate Risk
        • 2. Require a "Reduced Rate" Supplemental Scenario
      • Long-Term Approaches
        • 1. Modernize Scenario Selection: Move Toward Standardized Representative Scenarios
        • 2. Require Consistency Between Strategy Rates and the Illustrated Scenario
        • 3. Strengthen Standards for Newly Developed and Bespoke Indices
  • Consumer Representatives Comment - 164p - Brenda Cude, Bonnie Burns, Brendan Bridgeland, Ken Klein, Erica Eversman, and Interested Party Birny Birnbaum
    • We have long been frustrated by the inadequacies of these illustrations.
    • Our comments, in the attachments listed below, address a number of issues.
    • p1 - A recommendation that the Working Group’s work take into consideration the knowledge gained from research about consumers and annuities (Best Practices for Annuity Disclosures, prepared by Brenda Cude)
      • p2-6 - 2026 03 - Best Practices for Annuity Disclosures, by Brenda J. Cude, Professor Emerita, University of Georgia, NAIC Consumer Representative
      • p2 - Annuity disclosure design should be grounded in research-based knowledge about what consumers care about when choosing among annuities.
      • Several themes show up consistently across behavioral, marketing, and retirement-income studies.
      • p6 - High-Level Takeaway: Consumers care most about income amount, trust in the insurer, guarantees, and simplicity. I hope we can keep that in mind as we think about annuity disclosures.
    • p7 - 2026 03 - Life Insurance and Annuity Disclosures Must Address Long-Term Care Insurance Benefits, by Bonnie Burns, NAIC Consumer Representative
      • p7 - We ask that the Life Insurance and Annuities Working Group consider the impact of life and annuity LTC riders or benefits in its work.
    • p8-18 - 2023 12 - to NAIC (LIAC) - Consumer Financial Literacy vs. Illustrations for Life Insurance and Annuities, Brenda J. Cude and CEJ / Birny Birnbaum
    • p19-34 - 2023 - CEJ / Birny Birnbaum - Re-Engineering Life and Annuity Illustrations and Disclosures for Consumer Protection and Fair 
    • p35-p45 - 
    • p46-50 - 
    • p51-70 - Illustrations - SILAC - 
    • p71-103 - Illustrations - F&G
    • p104-164 - Report - Disclosure: Why it shouldn’t be the default, A joint report from the Australian Securities and Investments Commission (ASIC) and the Dutch Authority for the Financial Markets (AFM)
  • Joint Trades Comment - 3p - ACLI, CAI - COMMITTEE OF ANNUITY INSURERS, IRI - INSURED RETIREMENT INSTITUTE
    • We agree that in order to make an informed decision about the purchase of an index annuity consumers need to understand how the product operates and how it performs under various market conditions. The NAIC’s Annuity Disclosure Model Regulation (Model #245) seeks to address this through a buyer’s guide that describes the various deferred annuities available in the marketplace and with rules governing annuity illustrations.
    • ....  we encourage you to work closely with the Annuity Buyer’s Guide Working Group to ensure alignment between the two groups. 
    • The illustration rules set forth in Model #245 were intended to help consumers make informed decisions about annuities, but the Model has not been widely adopted by states.
    • ...  the Working Group can also explore whether Model #245 is performing as originally expected and whether it does in fact address the concerns raised by the Working Group in the states that have adopted the Model.
      • In connection with that review, we recommend conducting consumer focus group testing to better understand the information consumers want related to index annuities and the value of the existing illustration and disclosure framework would be helpful.
      • Any future work should be grounded in an understanding of how the current framework is, or is not, meeting the needs of regulators and consumers in states that have adopted the Model and states that have not adopted the Model.
    • While we appreciate the Working Group soliciting feedback on the general direction that it should move towards, we think more foundational work on the specific nature of any concerns, and the specific situations giving rise to those concerns, is needed to determine any next steps.
  • Steve Malerich - 2p - Actuary, Retired
    • p1 - I have two identified two areas where current practices appear to be inconsistent with the objective to “ensure … reasonable expectations regarding future performance” of index annuities. Both areas involve the disclosure of returns – likely unsustainable – that are based on past performance of an index.
      1. Price / Earnings Ratios
      2. Back-casting
    • p2 - Even if insurers begin with good intentions, I imagine that they build their proprietary indices from past winners in the market.
    • If, at first, just a few insurers deliberately build their proprietary indices to enhance historical returns, then they will lead the market in illustrated returns. Pressure will then be on other insurers to do the same; to not do so would likely mean to surrender their competitive position.
    • Lacking the ability to look inside today’s market leaders, I can’t say for certain that this explains the extraordinary returns that are being disclosed. But, “if it looks like a duck …”
    • It seems to me that the safest way to protect against such abuse would be to prohibit disclosure based on back-casting of proprietary indices. Any attempt to regulate it otherwise, I suspect, would allow some insurers to find ways around the regulation, eventually leading us into “too good to be true” territory.
  • Dick Weber Comment - 10p - LICAC - Life Insurance Consumer Advocacy Center, Gerard J. Vanderzanden
    • Attachments:
      • p4 1. F&G annuity illustration page
      • p5-10 - 2. “The Answer, Dear Brutus, Lies Not in the Life Insurance Products, But in Policy Illustrations” from the March 2026 edition of The Journal of Financial Service Professionals
    • LICAC is concerned that while annuity and life policy illustrations are intended to show how the policy dynamics (expenses and credits) WORK, illustrations are almost always perceived as a “projection” of policy values. In LICAC’s experience, policy illustrations are often used by agents to create and set buyer expectations.
    • Policy complexity is a problem for most consumers, but policy illustrations are the REAL problem. Even if the agent doesn’t specifically intend to use the illustration as a projection of outcome, the consumer will almost always interpret the illustration as a projection.
    • When the NAIC last broadly addressed the use of life insurance illustrations in 1995, it adopted Life Insurance Illustration Model Regulation #582. Variable universal life was explicitly excluded from that regulation, and Indexed products had not yet appeared in the marketplace and therefore could not be addressed in the Model. NAIC’s Model 245 attempts to similarly regulate annuity illustrations, but the Model has not been widely adopted.
    • 30 years ago, three-page policy illustrations were the norm before the 1995 Model Regulation, but 50+ page illustrations soon emerged to address the Model’s requirements, likely an unintended consequence. The consumer has not been well served by this explosion of data and narratives.
    • In the short-term, we recommend:
      • Incorporate graphic images of accumulating value into illustrations in place of streams of numbers.
      • Determine the 5 scenario criteria and require consistency in use for all carriers and products.
    • In the long-term:
      • Incorporate into such a display user controls that allow the consumer to consider the “what ifs?” of premium/accumulation scenarios for annuities, and as it relates to life insurance illustrations, adjustable for age/rate class/death benefit/premium/withdrawals/loan variations.
    • Attachments:
      • p4 - 1. F&G annuity illustration page
      • p5-10 - 2. “The Answer, Dear Brutus, Lies Not in the Life Insurance Products, But in Policy Illustrations” from the March 2026 edition of The Journal of Financial Service Professionals
  • Utah Department of Insurance - 1p  
    • Past performance is not an indication of future performance.
    • Hypothetical returns should be round numbers, like 0%, 5%, 10% and should be capped by regulators. Showing hypothetical return of 20% serves no purpose, creates unrealistic expectations, and is very likely misleading. Using an illustrated return like 7.83% creates a false perception of precision and knowledge. If an insurance company illustrates a return of 7.83%, consumer is more likely to assume that the return is supported by research and not just a guess.
      • One potential solution would be to limit illustrated returns to whole percentages not exceeding 10%, and to illustrate at a rate selected by a consumer.
    • Regarding past performance, only the actual historical performance should be shown
  • Michigan Department of Insurance and Financial Services - 2p - Danielle M. Torres, Company Market Regulation Manager, Department of Insurance and Financial Services
    • ...  index annuity disclosures shortterm and long-term approaches that may ensure consumers receive reasonable expectations for index annuity concerns at the point-of-sale.
    • Short-term solutions
      • Educational materials and/or alerts could be updated or drafted for consumers. The consumer representatives could be consulted to determine the most effective ways to communicate this information to consumers.
    • Long-term solutions
      • Prior to revising Model Law 245, review existing state and federal regulations for similar products including but not limited to:
      • Current NAIC model laws related to disclosures of life and annuity products
        o Model Law 250 – Variable Annuity Model Regulation
        o Model Law 270 – Variable Life Insurance Model Regulation
        o Model Law 570 – Advertisements of Life Insurance and Annuities Model Regulation
        o Model Law 582 Life Insurance Illustrations Model Regulation
      • FINRA rules for variable annuities and RILAs
        o FINRA Rule 2211. Communications with the Public About Variable Life Insurance and Variable Annuities.
      • Individual state statutory requirements 
      • Investigate tools or other resources that regulators could use to proactively assess the market and identify products that are failing to meet projections.
      • This work could complement the technical work focusing on how consumers perceive and use illustrations.