Illustrations - Solutions

  • The credibility of permanent life insurance has suffered serious damage because of insurance proposals, or illustrations, with unrealistic projections of future earnings.

1995 - SOA - Insurance Illustrations: A Possible Solution, by Lloyd Foster, Society of Actuaries - 2p

  • It is probably true that most of the information needed is already in illustrations but doesn't get to the consumer because of their limited attention span or because of how the information is presented.
  • Though it is usually not stated so simply, in the area of llustrations, format not content is the key to improving disclosure.

--  Bradley E. Barks

1993 - SOA - Sales Illustrations - We Can't Life With Them, But We Can't Live Without Them!, Society of Actuaries - 28p

  • Rodney C. Wilton: We cannot stop people trying to sell or design gold bricks.
    • As actuaries, all we can do is make it so people have a better chance of knowing what they are buying.
    • The simpler a product, the more chance the prospective policyholder has to know it is a gold brick.
      • For instance, if it is a single premium deferred annuity, illustrated on a nonguaranteed basis at 15%, the policyholder has a good chance of knowing it may be a gold brick. What he needs is a benchmark.
      • People have a benchmark for interest rates.
      • In that respect, universal life is better than participating whole life since dividend scales do not have an interest rate attached to them. You can show a dividend scale that cannot be met and the buyer has no way of knowing that.
      • A simple set of assumptions could be established and a simplistic product could be defined.
      • If actuaries put that out, it would be a benchmark.
      • If somebody is trying to sell something a lot better, he can say, "Which of these assumptions are you bettering?
        • Do you have less expenses than are here?
        • Are you going to make more interest?
        • Are you assuming fewer are going to die, or are you trying to fool me?"
  • William TOZER: The ACLI Cost Disclosure Committee has not looked at this issue, but in the area of cost disclosure, it has tried to establish an industry benchmark and has had problems.
    • One is a mortality standard. The mortality standard varies considerably between salary savings market and the select underwriter market.
    • Expense standards would vary between smaller policies and larger policies. Is it more dangerous for a company to illustrate an average interest rate when it is earning a lower interest rate than someone illustrating an above average interest rate and earning that rate?
  • Rodney C. Wilton: I am not talking about mandating illustrations.
    • The company would be able to put out any illustration.
    • But if the illustration looked too good compared to an industry vanilla product, the client would have warning.

1988 - SOA - Actuarial Opinion on Non-Guaranteed Elements, Society of Actuaries - 12p