• Rules Governing The Advertising Of Life Insurance
• At the June NAIC meeting in Boston, the Task Force announced that it was charged with the review of the Rules by the NAIC President Josephine Driscoll (Ore.).
  • The Oregon Division believed that revisions may be necessary to keep pace with the new generation of products.
• At the September NAIC meeting in Des Moines, the Task Force reported that it's Subgroup had drafted revised Model Rules which would be circulated for possible reception as an exposure draft at the December NAIC meeting.
• The Advisory Committee subsequently received the draft rules for review and comment.
  • It met on Nov. 19 and again on Dec. 7 to discuss the draft rules and prepare this report.
  • The Advisory Committee appreciates the need to review the existing Model Rules in view of recent product innovations, but the draft Rules appear to go beyond the Task Force charge in several respects.
  • Furthermore, the Advisory Committee believes that the charge was misdirected.
  • This issue should be referred to the Life Insurance (A) Committee.

Definitions. Section II(l) expands the definition of "Advertisement" significantly. The "Insurance Producer'' concept is discussed below. The term "third parties" is gratuitously added to Section Il(l)(b) without being defined. Unless the need for this addition can be demonstrated and the term clearly defined, "third parties" should be deleted. Section 11(3) defines the concept of "Insurance Producer" as an all inclusive, generic label for individuals involved in a broad spectrum of insurance transaction activities. The definition could include individuals who are not authorized or appointed to act on behalf of the insurer.

• When the existing rules were adopted in 1975 at the June NAIC meeting, concern was expressed regarding the scope of insurer responsibility.
• Farmers Insurance Group proposed amendments that would limit the Section II definition of "Advertising'' to that which was authorized or used by the company. Farmers also wanted to limit Section III(2) responsibility: "All such advertisements, regardless of by whom written, created, designed, or presented, shall be the responsibility of the insurer after being called to its attention." (See NAIC Proc. 1975, Vol. IL p.332.)
• The Farmers proposal was rejected, but it is clear that agent/solicitor/broker appointment by the insurer was assumed when the Rules were adopted by the NAIC.
• Consequently, there must be some ascertainable standard for determining the scope of the insurer's responsibility and corresponding liability.
• If the concept of "Insurance Producer" is deemed essential to and within the ambit of the charge, which seems doubtful, the definition should be at least qualified by adding "insurer-appointed" immediately preceding the word "individual" in the definition.

The Market Conduct Surveillance Task Force also should consider the current work of its sister task force. The Agents Licensing Study Task Force and its Advisory Committee will consider producer definitions as one of its projects. It would seem more appropriate for that Task Force and Advisory Committee to include the definition of "Insurance Producer" in its work product. If the definition is included in a model licensing statute, it would not need to be qualified in the manner recommended above. But when it is proposed for life advertising rules, it automatically impacts the scope of
insurer responsibility; hence, the need for the recommended qualification.
Disclosure Requirements. Section V contains an abundance of new disclosure material which appears to duplicate, at least in part, existing model regulations. This list would include, but is not necessarily limited to, the following models:
Universal Life Insurance Model Regulation; Life Insurance Disclosure Model Regulation; Model Annuity and Deposit
Fund Disclosure Regulation. Furthermore, the Life Insurance (A) Committee disclosure projects, such as those assigned to the Yield Index and the Indexed Products other than Universal Life Advisory Committees, are ongoing. In addition, we have learned of a proposal of the American Academy of Actuaries to amend the advertising rules that should be considered. Suffice it to say that a charge concerning revised life advertising rules and innovative product disclosure would be more appropriate and suited for the Life Insurance (A) Committee. In this way, duplication of effort can be
avoided and a quality work product ensured.
Section V 12(b) lists specific activities that allegedly constitute the activities of a "financial planner," "investment advisor," "financial consultant" or "financial counselor." Although the first sentence of this paragraph properly prohibits use of these terms unless the insurance producer is actually engaged in these activities, this prohibition is already contained in the Life Insurance Disclosure Model Regulation. Furthermore, the draft regulation is not the proper vehicle for regulating the undefined activities of a "financial planner," "investment adviser," "financial consultant" or "financial counselor." The activities of these specialists are already regulated by various state and federal laws, so there is no need
to establish dual regulation of this activity.
Enforcement Procedures. Section IX(2) expands the existing "capacity or tendency to mislead or deceive" standard found in Section IV(l). Prior review or approval of advertising should not turn on whether the Commissioner "finds that it may be in the best interests of the public." (Emphasis added.) The latter test is far too subjective and whimsical. We also believe that it violates Section 12 of the Unfair Trade Practices Act. If Section IX(2) is deemed lawful, necessary and within the Task Force charge, which is doubtful, it should be revised as follows: If the Commissioner determines that an advertisement has the capacity or tendency to mislead or deceive the public, he may require particular insurers or insurance producers to submit all or any part of their
advertising material to the Commissioner for review or for approval prior to use.

In summary, we believe that the expanded definition of "Advertisement" goes beyond the charge. The undefined term ''third parties" should be deleted. The term "Insurance Producer,'' although defined, would add new and unlimited dimensions to insurer responsibility. At the very least, the definition of producer should be limited to "insurer-appointed" producers. But it would seem premature to address this issue before the Agents Licensing Study Task Force/ Advisory Committee has completed its work. The life advertising rules should not attempt to regulate the activities of the "financial
planner," et al category. The prior review or approval standard in Section IX(2) should be consistent with the unfair tra.de practices standard found in Section N(l). A different, more subjective standard would not only exceed the charge, but also would violate Section 12 of the Unfair Trade Practices Act. Finally, but most importantly, the entire charge should be referred to the Life Insurance (A) Committee for the same reasons expressed under the life/annuity discussion:
managerial efficiency, avoidance of duplication, expertise and work product quality.

1987-1, NAIC Proceedings