1990s – ACLI – Snippets

  • I’m going to discuss what Norm referred to as consumer disclosure forms.
    • To date, no state has adopted these forms.
      • Why this complete lack of action after all the effort in developing the forms?
    • One possible reason is that, during the early part of the year, state insurance departments are generally busy dealing with the  legislatures, which customarily are in session then.
    • Also, it takes a few months for new NAIC regulations to be officially published, distributed, and adapted for individual state use.
    • Many states also have been occupied with more urgent concerns, such as automobile and health insurance rates and solvency questions.
    • [Bonk: “these forms” – 1990-1A, NAIC Proceedings – NAIC / LIMRA – Universal Life Disclosure Form Focus Group Summary  —   [BonkNote]  —  10p

—  Tony Spano, ACLI

1990 – SOA – Quality of Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • 1990 – SOA – Quality of Life Insurance Sales Illustrations, Society of Actuaries – 16p
    • ⇒ 1988-2, NAIC Proceedings –  6. Heard report on survey of states on identifying consumer/disclosure concerns regarding universal life, variable life and other interest sensitive products. <WishList>
  • Tony Spano, ACLI: Norm has covered a good bit of history, describing activity over a number of years. Very modestly, he did not mention that during this time he was very much at the cutting edge of developments.
    • I’m going to discuss what Norm referred to as consumer disclosure forms.
      • They’re also known as policy information forms.
    • I’ll first cover some background, then describe the forms and the major issues that arose during their development, and finish with a few words about the next step in the process.
  • BACKGROUND
    • The policy information forms were developed by the NAIC over a period of a year and a half. The impetus for the effort came from some of the state regulators, particularly William Hager, then insurance commissioner of Iowa. Some of you may remember Mr. Hager from a few years back when he was general counsel of the AAA.
  • The first word about this project came at the June 1988 NAIC meeting, when a report was presented summarizing the results of a survey of the different state insurance departments on consumer disclosure concerns.
    • The report cited a number of alleged abuses regarding sales illustrations for interest-sensitive products, including the following:
    • Illustrations with “outrageous” interest rate assumptions.
    • Current rate illustrations based on a different rate than the one currently being paid.
    • Nonguaranteed elements built into the calculations. (I assume this meant that nonguaranteed items were being blended with guaranteed items in some of the calculations.)
    • Unrealistic assumptions, such as increasing interest and decreasing mortality.
    • Illustrations which include items not in the contract.
  • A regulatory working group was appointed to help remedy these abuses and enable the consumer to make more meaningful comparisons of different policies.
  • Ed Zimmerman, American Council of Life Insurers, expressed his concern about meaningful disclosures stating that the ACLI did not believe the proposed amendments to the Rules Governing the Advertising of Life Insurance and the Life Insurance Disclosure Model Regulation provide meaningful disclosure.
    • Specifically regarding the advertising rule, Mr. Zimmerman said it would not be possible to determine which policies fall within the parameters of this proposed language.
    • He questioned how institutional advertising should be dealt with.
    • Mr. Zimmerman offered to have the ACLI subcommittee focus on cost disclosure issues to find an appropriate way of addressing them.
    • He expressed a need for the working group to more clearly define the objectives of its work product. (p600)

1991-1A, NAIC Proceedings – Life Marketing Practices to Senior Citizens Working Group

  • As originally drafted, the language “attached to the policy” connotes that the form is a part of the policy and subject to the Entire Contract Clause. 
  • Commissioner Lyons noted that the company is still responsible for the information contained on the disclosure form and that this amendment in no way reduces the ability of the insurance department or the applicant to take action on any misrepresentations of an agent.
  • Ed Zimmerman (ACLI) said the disclosure form is not a part of the policy, but that does not mean an insurance department or an applicant would not have a cause of action if there were misrepresentations by an agent.
    • He reminded the committee that this disclosure form was intended to be a simple, straight forward form to facilitate consumer understanding.
  • Neil Rector (Ohio) suggested language for a drafting note.
  • Upon motion duly made and seconded, the committee adopted language for a drafting note to clarify that the amended language does not diminish the insurer’s responsibility for the actions of an agent in any misrepresentations on the disclosure form.
  • Upon further motion duly made and seconded, the Life Insurance Disclosure Model Regulation, as amended, and the Financial Review of This Policy disclosure form were adopted (Attachments Three and Four respectively).

1991-1A, NAIC Proceedings

  • Who Pays for the Guaranty Association Protection?
    • (p154) – The funds necessary to fulfill an insolvent insurer’s obligations are obtained by assessments levied against other insurance companies doing business in the state.
    • (p155) – State law also provides that an assessment may be waived for an individual insurer if the commissioner of that state determines that payment of the assessment would endanger the insurer’s ability to meet its own obligations.
      • Assessments waived for an individual insurer are paid by the remaining insurers doing business in the state.

—  (p154) – Statement of The American Council of Life Insurance (ACLI),  Marcia Horton – Lincoln National Life Insurance Company

1991 0227, 0507, 0509, 0523 – GOV (House) – Insurance Company Solvency, Cardiss Collins (D-IL)  —  [BonkNote]

  • ACLI – Section 1B and C – Tony Spano (American Council of Life Insurance) suggested amending the word “policy” in these two subsections to read “advertisement” since policies do not contain any advertised material. He said any references to “policy” in either of these two items would be inappropriate. The working group decided to add the following language after “policy” in both Subsections B and C “and all advertisements with respect to that policy.”

1991-1A – NAIC Proceedings – p561 – Projected Interest Earnings Working Group – (A) – NAIC  —  [BonkNote]

 

 

  • (p280) – Tom Sutton (ACLI / Pacific Life) – My personal opinion is that I would not have any problem with a kind of disclosure that could be communicated simply, but was based on extensive analysis by someone capable of making the appropriate analysis.
    • I would not like a simplistic disclosure that could cause great dislocation because it did not recognize all of the factors in what is, in fact, a very complicated business. 

1991 0509 – GOV (Senate) – Insurance Company Solvency – Tom Sutton – ACLI – Pacific Life  —  [BonkNote]

29 Apr 1992, Wed Arizona Republic (Phoenix, Arizona) Newspapers.com

  • The huge amount of resource material furnished by Gary E. Hughes, Chief Counsel, Securities of the American Council of Life Insurance has made this study far more meaningful.

1992 – LR – Banking and Insurance – Should Ever the Twain Meet?, by Emeric Fischer – 101p

  • (p3-4) – Senator Howard Metzenbaum (D-OH) –  The purpose of our hearing today is to determine what this committee can do to put a stop to this shell game that life insurance companies are playing with consumers.
  • Our investigation showed that many companies offer misleading illustrations, including the five companies whose illustrations you see here today. While these companies cooperated with the subcommittee by providing materials, none of them wanted to present testimony here today.
    • We invited the American Council of Life Insurance to testify, but they also did not want to come. They said it was “inappropriate” for them to be “further involved in these matters.”

1992 0623 – GOV (Senate) – Consumer Disclosure of Insurance, Howard Metzenbaum (D-OH)  —  [BonkNote]

27 Jun 1993, Sun The Montana Standard (Butte, Montana) Newspapers.com

30 Dec 1993, Thu Daily News (New York, New York) Newspapers.com

  • One problem area in a lot of policies has been interest rates.
    • A slow cumulative, very large decline in interest rates has affected everything.
  • Why are we getting so many complaints?
    • Did the policyholder expect rates to stay the same forever?
    • Did the agent or the company mislead?
    • Did the policyholder think we were promising?
      • He shouldn’t have, I hope he didn’t.

—  Bruce E. Booker, Life of Virginia, a member of the American Council of Life Insurance (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations

1993 – SOA – Sales Illustrations – We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries – 20p

  • The policyholder is taking more of the risk and the company is taking less, and we hope that’s reflected in the cost to the policyholder.
  • But what does the policyholder know, what does he think and what does he expect is going to happen in the future?
  • Actuaries can do lots of things.
    • We can provide the field with a clear description of the policy and how it works.

—  Bruce E. Booker, Life of Virginia, a member of the American Council of Life Insurance (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations

1993 – SOA – Sales Illustrations: We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries – 20p

  • Gene Grabowski, spokesman for the American Council of Life Insurance, the industry’s biggest trade group, said insurers acknowledge there are problems but “don’t think that drastic steps are necessary.” 
    • In most cases, he said, agents represent policies accurately, but consumers “want to hear the positive side and don’t always hear the negative.”

1993 0910 – Los Angeles Times – Regulators Blast Insurers, Call for Reform: Consumers: A task force criticizes economic assumptions and marketing tactics used to sell life policies, by Thomas S. Mulligan – [link]

  • Richard Minck (ACLI) said the most striking change in life insurance in past years was in the non-guaranteed elements.

1994-1, NAIC Proceedings

It is these concepts or the uses of the products and not the illustrations that are the difficulties here.

—  George Coleman

  • …chairperson of the Technical Resource Group (TRG), which is the industry advisory committee to the NAIC Disclosure Committee.
  • …vice president, government relations with Prudential Life Insurance Company.
  • …responsible for Prudential’s NAIC activities with special emphasis on life insurance.
  • …serves as a member of the American Council of Life Insurance (ACLI) Legislative Advisory Committee, and Accelerated Benefits Working Group, Marketing Practices Task Force and is a member of several other groups.

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

  • Harry Hohn of the American Council of Life Insurance, talked about goals for insurance companies.
    • They want to limit punitive damage awards for all classes of defendants.
    • The cost of these outrageous awards are always passed onto the consumer.

Senate Agenda – [VIDEO-CSPAN-https://www.c-span.org/program/public-affairs-event/senate-agenda/53282]

  • 1996 – LR – Punitive Damages Reform: The Case of Alabama, by George L. Priest – 17p
    • ⇒  27. Gallant v. Prudential Life Ins. Co., Barbour County, AL, CY·93-S0 (1994)  —  [BonkNote]
    • ⇒  The expert estimated that the verdict reduced dividends to every Alabama policyholder (Prudential is a mutual carrier) by $323.
  • Two weeks ago in the National Underwriter, there was a report of the working group’s meeting in Philadelphia, and on the same page was a writeup about an agent who had won a very large amount of money from his company. [Bonk: agent = William Casteel]
  • Apparently, he never understood about “vanish” illustrations and got into trouble with his clients.”
  • I found it fascinating that the agent in the Crown Life case got $40 million for mental anguish.

—  Kevin A. Marti, vice president of administration and chief actuary for Westfield Life Insurance Company

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

  • Philip E. Stano, senior counsel for litigation at the American Council of Life Insurance (ACLI), has argued that the insurance fraud provisions of the 1994 law were based on a flawed premise – Congress’ failure to respond in timely fashion to the savings and loan crisis of the late 1980s.
    • “Congress erroneously believed that parallels could be drawn between the insurance industry’s and the savings and loan industry’s financial condition and the degree of criminality occurring within those industries,” Stano wrote. 

1996 – CQPress.com – Insurance Fraud: Will a new crackdown reduce the losses?, By Richard L. Worsnop, October 11, 1996 – Volume 6, Issue 38 – [link]

  • 1997 1024 – WSJ – MONY Wins Dismissal of Suit Over ‘Vanishing Premium’ Policies, by Leslie Scism – [link]
    • Goshen vs. MONY – Mutual Life Insurance Company of New York
    • The company, popularly known as MONY, won a dismissal this week of a national class-action lawsuit that is similar to more than 30 suits pending against major life insurers.
    • … in the MONY case, New York state judge Beatrice Shainswit found that..
      • while thousands of consumers nationally “have been deeply aggrieved by what they perceive to be a grave injustice perpetrated upon them by the numerous insurance companies who contrived, and profited, from the “vanishing premium” concept,” this “ill-conceived product” doesn’t necessarily “equate to fraud, or any other actionable wrongdoing, which can be compensated for in a court of law.”
      • Her 29-page decision debunks key arguments in almost all of the suits. – <WishList>
        • She said insurance agents don’t have a fiduciary relationship with their clients, as plaintiffs’ lawyers contend.
        • She also maintained that sales documents stating that dividends aren’t guaranteed at high levels were sufficient warning to consumers that they couldn’t rely on other promotional literature showing rosy dividend scenarios.
    • [ACLI] – “This case, being typical of many other baseless class actions, will be cited as authority in other jurisdictions for dismissing those frivolous cases,” predicted Phillip Stano, senior counsel for the American Council of Life Insurance, a trade group in Washington. “And we congratulate MONY for standing up to those who sought to intimidate them into a frivolous settlement.”
  • (p43-44) – ACLI – Ron E. Merolli – However, while we favor SAFE, we are concerned with that 5 percent guarantee.
    • We feel there should be a reasonable range of 3 to 5 percent. If the basis for the guarantee is 5 percent, insurers will need to make long-term investments that have yields higher than 5 percent in today’s very low interest rate environment.
    • If interest rates drop further, 5 percent causes financial difficulties. The trend is down and 5 percent could put insurers at long-term risk.
    • We are conservative investors-investing mainly in high-quality bonds and mortgages. The interest earned on the investments is competitive. Therefore, to guarantee an interest rate for the long term of 5 percent-when long-term rates are currently hovering at less than 6 percent and where they could decrease to less than 5 percent, raises serious concerns.
    • If rates are declining, this may tempt insurers to take more credit risks.

1998 0310 – GOV (House) – Oversight of Pension Issues, Nancy L. Johnson (R-CT) – [PDF-109p, VIDEO-?]