NAIFA / NALU - Snippets

1960s

  • 1968 0304, 05, 20, and 21- GOV (Senate) - Door-to-Door Sales Regulation, Warren G. Magnuson (D-WA)

    • [PDF-347p-GooglePlay-link]

    • Direct Selling, 

    • (p133) - THE RIGHT OF FREE MEN TO ENGAGE IN LEGITIMATE BUSINESS, By National Better Business Bureau, Inc., New York, N.Y.

      • The right of free men to engage in legitimate business is exemplified by the door-to-door salesperson who is so familiar a part of the contemporary American scene.

      • DIRECT SELLING IS LOCAL BUSINESS - Aside from these independent salesmen, a surprising number of established local business firms of an average community use direct selling methods. They include: Insurance agents and agencies

    • (p) - NALU - NATIONAL ASSOCIATION OF LIFE UNDERWRITERS,  March 29, 1968 - DEAR SENATOR MAGNUSON : As an association of more than 100,000 life and health insurance agents, we would like to take this opportunity to express our views on S. 1599, the "Door- to- Door Sales Act.

    • Senate - Committee on Commerce - Consumer Subcommittee

1970s

  • George Hill:  In September, 1972, the National Association of Life Underwriters National Council went on record as opposing the adjusted method or any specific formula or index which purports to represent the cost or relative value of a life insurance policy.

    • However, their board of trustees held to its position of making available to the consumer all pertinent data and to its position that the interest-adjusted cost (IAC) might be useful under the proper circumstances, although it is inadequate and has limited application.

    • About the same time, the past president of the NALU, Mr. Mischke, summed up the position of both the NALU and the NAIC when he stated that cost comparisons are no substitute for accurate information about the policy provisions, premiums, and cash values.

    • So Mr. Mischke asked the commissioners not to require the agent to present inappropriate figures or confusing information to the prospective buyer.

    • The NALU's position has, however, become a little more receptive to the idea of cost comparison.

1974 - SOA - Life Insurance and Consumerism, Society of Actuaries - 160p

  • Second, an adequate flow of long-term capital is a critical need of a free society.

  • Indeed, many of the problems this country is experiencing at the present time are reportedly due to the fact that we don't have an adequate flow of long-term capital.

  • Whole life for over 100 years has been a major factor making it possible for the insurance industry to provide that long-term capital to this country.

  • That a Government agency at this critical point in time should espouse and recommend to the American people that this time-proven vehicle for the creation of long-term capital which served those same people so well should be abandoned in favor of term insurance is hard to believe.  (p79)

--  Thomas J. Wolff,  [NALU/ NAIFA] National Association of Life Underwriters

1979 0710 and 1017 - GOV (Senate) - FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   ---  [BonkNote] 

  • The findings and conclusions, and this Is the part that created the explosion, were that there is a shortfall of information, particularly with respect to ordinary life and that consumer experience does suggest that the consumer Is not able to adequately determine the suitability of the product, the quality of the product, or the cost of the product.

    • As a consequence, consumers are sustaining losses, and this would be a definite Indication of a market failure.

  • [Bonk: re 1978 12 - GOV (House - Report) - Life Insurance Marketing and Cost Disclosure Report Together with Dissenting Views, John Moss (D-CA)  ---  [BonkNote] ---   [PDF-109p] 

--  Jack E. Bobo, NALU, National Association of Life Underwriters, Executive Vice President

1979 - SOA - Cost Disclosure, Society of Actuaries - 18p

1980s

  • Mr. Brown, CLU, presented his statement on behalf of the National Association of Life Underwriters.

    • Mr. Brown's testimony emphasized the market confusion engendered by the FTC's release of the 1.3% rate of return. He provided numerous examples of misleading and deceptive advertisements based on the FTC press release.

    • He also gave examples of cancellations and replacements of whole life policies caused by the FTC's misleading release.

    • His point was the grave injury which the FTC's irresponsible actions have caused average life insurance consumers.

1980-1, NAIC Proceedings

  • 1983 0510, 0511 and 0728 - GOV (House) - Tax Treatment of Life Insurance, Pete Stark (D-CA)  ---  [BonkNote]

    • p314 - Statement of Thomas Gregg, NALU, National Association of Life Underwriters (cka NAIFA)

  • Chairman Pete STARK (D-CA):  Or, on the other hand, do you think we should get into more of the definition, as Mr. Gregg suggested we did in TEFRA, where we spell out percentages of cash value to face value?

  • [Thomas Gregg, NALU - National Association of Life Underwriters] -  (p328)

  • [Corridor]

1983 0510, 0511 and 0728 - GOV (House) - Tax Treatment of Life Insurance, Pete Stark (D-CA)  ---  [BonkNote]

  • William Albus (National Association of Life Underwriters - NALU) commented that:

    • ...the requirement for disclosing sales commissions is unnecessary because it is superfluous and would only confuse consumers.

    • ...the purpose of disclosure is to provide information for making an informed decision and the disclosure of sales commissions has nothing to do with making this decision.

1988-2, NAIC Proc.

  • NALU - The task force then heard from William Albus (National Association of Life Underwriters) who commented that if the so-called "range approach" were adopted, it would not necessarily be beneficial.

    • While he asked to reserve further comment as the proposal is further considered, the NALU was opposed to the amendments.

    • However, Mr. Albus noted his support for the current model and support for its continued adoption in the jurisdictions.

1988-2, NAIC Proc.

1990s

  • NALU - William N. Albus {National Association of Life Underwriters) suggested that in each instance where the words "interest," "interest rate" and "interest earnings" appear, the term "nonguaranteed policy elements" be substituted.

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

  • (p251) - Noel Morgan (Ohio) also asked what percentage a field agent was allowed to use in an illustration and Mr. Nelson responded that it could not be larger than what was currently being paid, but in a declining market that may not be a valid projection of future results.

    • Robert Nelson - an insurance agent from Nebraska who is chair of the National Association of Life Underwriters Sales Illustrations Task Force (NALU)

1993-1, NAIC Proceedings 

  • I sincerely believe we have a flawed instrument in today's sales illustrations.

  • ...we did not communicate the impact of change as well as we should have.

  • Our biggest mistake would be to delay.

  • I don't believe the consumer will tolerate or forgive us, let alone the regulators, if we do nothing.

--  Robert Nelson, Chairperson of the National Association of Life Underwriters (NALU) Task Force on Illustrations - (Currently NAIFA)

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

  • I'd like to stress that agents don't pretend to know the answers.

  • It is our intent to ask for your help because we're currently living with problems that lack solutions.

    • (your = actuaries)

--  Robert Nelson, Chairperson of the National Association of Life Underwriters (NALU) Task Force on Illustrations - (Currently NAIFA)

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

  • An agents' association representative [Robert M. Nelson (NALU / NAIFA)] reported that his group was concerned about problems because agents are generally the first to hear the disappointments, confusion and bitterness created by the unrealized expectations of policyholders.

  • Of paramount concern to agents is the fact that illustrations may not be supportable under current actuarial standards of practice.

  • He asked the group to concentrate on the serious problems caused when illustrations of non-guaranteed elements and dividends are not supportable for even a few years into the future and tend to overstate the amount of non-guaranteed elements and dividends likely to be paid.

  • The association recommended more precise definitions and stricter rules on supportability and current experience.

  • The association also asked the NAIC to take action to sensitize policyholders to the effect of a change in interest rates, and to mandate a signed disclosure statement where the consumer acknowledges he has read the illustration and understands it.

1993-1, NAIC Proceedings

  • [NALU - NAIFA] - William N. Albus, senior general counsel for the National Association of Life Underwriters, which represents life insurance sales agents, said illustrations of future benefits "are essential to explaining how a policy works."

    • He suggested that agents should be allowed to project current dividends into the future and include an example of how a policy would look if its dividends were reduced by one percentage point.

1994 0308 - NYT - Regulators Seek Limits on Insurer Sales Pitches, by Michael Quint  ---  [BonkNote]  ---  [link]

  • 1994-1, NALU (NAIFA) - NAIC Proceedings 

    • 13. The Cover Page for any illustration should contain the annual premium necessary to maintain the policy to maturity based solely upon the guarantees in the policy. This will assist the policyowner in understanding the differences between guaranteed and non-guaranteed policy features. 

2000s

  • (p77) - Ron Panneton (National Association of Insurance and Financial Advisors-NAIFA) said this discussion reminded him of a similar discussion the Life Disclosure Working Group had on equity indexed products.

    • In response to that problem, a checklist was created to help regulators to become convinced that people are adequately prepared to describe the complexities of the product.

    • <WishList - NAIC Checklist>

2000-1, NAIC Proceedings

  • 2003 0515 - GOV (House) - Retirement Security: What Seniors Need to Know About Protecting Their Futures, Richard H. Baker (R-LA)  ---  [BonkNote]

    • NAIFA - David F. Woods, CEO, National Association of Insurance and Financial Advisors - Testimony - 21p

      • (p9) - We have 800 local associations across the country representing 325,000 insurance agents, financial advisers and their staffs.

        • Our mission is to provide professional education and support to our members, to establish and to maintain ethical standards for them.

      • (p9) - Let me if I can just give you a very brief overview of the role that  an agent-adviser plays.

      • (p9-10) - And then to do the research, to find the appropriate products that may address those needs, and to bring those needs to their attention; to help them evaluate them; to provide competitive analysis for them, so that they can make an informed and intelligent decision about the products that are important in their lives.

      • (p25) - The other thing is, and Congressman Lucas can attest to this, he pointed out his credentials in the insurance industry, the best teacher of all, the best educator of all is a knowledgeable and qualified life insurance agent.

        • Consumer study after consumer study indicates that that is where people get their information, and they want to get their information from them.

2010s

  • In the early years of Single Premium Life (endowments), producers sold the heck out of them.

    • It took a while before the feds figured out they were being used as tax-shelters.

  • That epiphany led to the resurrection of the decades old debate about taxing the inside build-up in a life insurance contract, a war NAIFA has been fighting since 1913. - And won every battle.

2017 0803 - NAIFA-Washington - IFAPAC and MEC - [link]

  • Gary Sanders (National Association of Insurance and Financial Advisors-NAIFA) agreed that use of the term "cash value" was confusing.

2017 0207, NAIC Proceedings - LIBGWG, Life Insurance Buyer's Guide Working Group - Conference Call 

  • While life insurance is not a retirement strategy, it can help provide the opportunity for supplemental financial support in retirement.  (p23-24)

2018 - NAIFA - AdvisorToday - Bridging the Gap: An understanding of the potential uses for permanent life insurance can help clients see it as a tool to help fill gaps in their portfolio, By Jason Wellmann - 53p

  • Gary Sanders (NAIFA): And that leads to my second concern which is that consumer confusion... I think, and we fear, in large part is going to be translated into a lack of confidence or a lack of trust in their advisor.

    • And in some way or another, the consumer is going to end up with the feeling that the advisor did some form of misrepresentation initially to the consumer and now the truth is coming out. 

  • And I think that is a very big concern and not only would it harm the consumer's confidence in the producer, but it could have a lot of reputational damage to producer's as well.

2019 1115 - NAIC - IULISG - IUL Illustration Subgroup, Conference Call - [Bonk:  Not in NAIC Proceedings]

Accountability

  • Second, it was observed that ….. there is virtually no accountability for any of the participants in the sale,
    • ..not for the company, not for the agent, and interestingly, the white paper discussed accountability on the part of the purchaser as well.

—  Robert E. Wilcox,  Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

2010-Blumenthal v New York Life - Deposition - Universal Life Policy 2010-Blumenthal v New York Life – Deposition – Universal Life Policy
  • Neither model was intended to generate Buying Guides or to relieve consumers of their own individual responsibilities to understand the product that they are spending their hard-earned money to buy after all. 

—  Michael Lovendusky, ACLI, American Council of Life Insurers

2018 1009 – NAIC Conference Call – LIIIWG, Life Insurance Illustrations Working Group – [Bonk: Not in NAIC Proceedings]

Fiduciary

  • (p54) – 1:34-1:41 – Eric DINALLO, Superintendent, New York State Insurance Department – Well, I think it’s important for everyone to know there’s a very strong tension between policyholders’ interest and shareholders’ interest in a publicly traded company.
    • The board and management has a fiduciary interest to shareholders under our law, fiduciary interest to shareholders, but, at the same time, whenever they release capital to satisfy that to get a bigger return on equity, they are necessarily taking incremental protection against policyholders.
  • Bruce BRALEY (D-IA) –  And you also have a fiduciary obligation to policyholders under their contractual obligation with the policyholder.
  • Mr. DINALLO. Sadly, there is some debate, actually, because they’ve been so trained under our law and after Enron, etc., to worry about fiduciary duty to shareholders that there is a good argument that, although it’s in their blood to worry about policyholders, the legal requirements are a little bit gray, actually.

 GOV (House-OGR) – The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing, Henry Waxman (D-CA)  —  [BonkNote]

  • The Proposal is premised upon the Department’s rejection of the dichotomy under the law between a sales recommendation to a consumer on the one hand, and advice provided for a fee on the other.
    • The Department’s Proposal seeks to define the term “investment advice fiduciary” to include anyone who is in the business of making routine sales recommendations by persons engaged in commonplace sales and marketing efforts.
    • The Fifth Circuit disagreed with the Department’s conflation of sales activity and fee-based investment advisory activities back in 2018, observing that “when enacting ERISA, Congress was well aware of the distinction … between investment advisers, who were considered fiduciaries, and stockbrokers and insurance agents, who generally assumed no such status in selling products to their clients.”
  • The court found that the Department’s interpretation of ERISA:
    • conjoins “advice” with a “fee or other compensation, direct or indirect,” but it ignores the preposition “for,” which indicates that the purpose of the fee is not “sales” but “advice.”
    • Therefore, taken at face value, the provision rejects “any advice” in favor of the activity of “render[ing] investment advice for a fee.”
    • Stockbrokers and insurance agents are compensated only for completed sales (“directly or indirectly”), not on the basis of their pitch to the client. Investment advisers, on the other hand, are paid fees because they “render advice.”
    • The statutory language preserves this important distinction.

2024 0102 – Letter – ACLI to GOV-DOL / EBSA – Subjects: Retirement Security Rule: Definition of an Investment Advice Fiduciary (RIN 1210-AC02); Proposed Amendment to Prohibited Transaction Exemption PTE 84-24 (Application No. D-12060); Proposed Amendment to Prohibited Transaction Exemption PTE 2020-02 (Application No. D-12057)  —  [BonkNote] 

 

  • Plaintiff claims that Defendants breached a fiduciary duty. (See generally Doc. No. 1-2.)
    • However, while the insurer-insured relationship contains many elements of a fiduciary relationship, “‘the [California] courts which have directly addressed the issue … have specifically held that there is no fiduciary duty between an insurer and an insured.'” 
      • General American Life Ins. Co. v. Rana, 769 F. Supp. 1121, 1126 (N.D. Cal. 1991) (quoting Hassard, Bonnington, Roger & Huber v. Home Ins. Co., 740 F. Supp. 789, 792 (S.D. Cal. 1990)).
    • Thus, as no fiduciary duty exits, Plaintiff cannot plead a breach of fiduciary duty.

2019 – LC – Openiano v. Hartford Life and Annuity Insurance Company – 18-cv-0943 – D35 – Order Defendants’ Motion for Judgement on the Pleadings, District Court, Southern District of California – 11p

Informed Consumer

  • (p33) – Informed consumers are the cornerstone of effective consumer protection.
    • This is particularly true in relation to life insurance with its proliferation of complex products over the past decade.

—  NAIC – Statement of David Lyons, Iowa Insurance Commissioner (IA), On Behalf of the National Association of Insurance Commissioners 

1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • Tony Spano, ACLI – The subject we are discussing relates to the broad objective of helping the life insurance consumer make an informed purchase decision.

1988 – SOA – Are Current Illustrations Supportable?, Society of Actuaries – 20p

  • Idea of the Informed Consumer
    • 3) Have a larger discussion about the disclosure and buying process… 

— Pat Reeder, ACLI

2020 0724 – NAIC – LIIWG – Life Insurance Illustrations Working Group – Conference Call  

  • Why is an “Informed Consumer” important?
    • Efficient Markets
    • Capital Formation
    • Company Solvency
    • Meeting Consumer Expectations / Retirement Security
    • US Economic Stability
    • Public Relations
  • Indicators of Uninformed Consumers
    • Lawsuits
    • Complaints to State / Company
    • Extortion –
      • 2010 – Legal Case – Anthony Digati  – New York Life
    • Media Reports
    • Market Conduct Problems
    • Government Reports / Hearings
    • Consumer Testing / Focus Groups
  • What aren’t Consumers Informed about?
    • Life Insurance / Actuarial
      • Types of Policies
      • Coverage Period/ Plan of Insurance / Performance
      • Non-Guaranteed Elements / Assumptions
      • Premium, Cost of Insurance, Cash Value
      • Surrender Charge
      • Options, guarantees, riders
      • Purpose of Policy
      • Free-Look Period
    • Law
      • Duty to Read
      • Reasonable Person
      • Statute of Limitations
      • Reasonable Reliance

Why is Informed Consumer challenging?

The working group’s concern was how to bring about a change without damage to the marketplace.

1993-4, NAIC Proceedings

  • 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

1992 – SOA – Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • Consumer Testing / Focus Group / Illustrations
    • 1990-1A, NAIC Proceedings – NAIC / LIMRA – Universal Life Disclosure Form Focus Group Summary, Consumer Issues Disclosure Working Group – NAIC  —   [BonkNote]  —  10p
  • There is bound to be a controversial element in anything that enlightens the public to these differences and gives them a more intelligent basis for choice than they have at the present time.

—  Ernest J. Moorhead

1981 – SOA -Individual Life Insurance Cost Disclosure Issues, Society of Actuaries – 22p

  • Why Not?
    • Personal Accountability
    • Contract
    • not my job
  • WHO?
    • Who could / should Inform Consumers?
      • NAIC (National Association of Insurance Commissioners)
      • ACLI (American Council of Life Insurers)
      • Agents
      • Consumer Educators
    • Who could be blamed for an UnInformed Consumer?
  • HOW?

WHY? – Why is an “Informed Consumer” important?

  • The most obvious is if we fail policyholder expectations, we may have policyholder suits <lawsuits>.

—  Larry R. Robinson (Chairman of the ACLI Subcommittee on Cost Comparisons)

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

  • Complaints and inquiries related to life insurance and annuity products were less frequent, and generally concerned consumer dissatisfaction with, or confusion regarding Universal Life insurance policies.

2018 – Wisconsin Insurance Report – 219p

  • Michael Lovendusky, ACLI said the ACLI work group thinks that most confusion for consumers involves complex products like Universal Life, and not simple products like term life.
  • He said consumers are mostly confused about options, guarantees and riders. 

2016 0403 – NAIC – Life Insurance Illustrations Working Group, NAIC Proceedings
  • A popular insurance product of the 1980s and 1990s <Universal Life> has come back to bite many older Americans.

2018 – WSJ – Universal Life Insurance, a 1980s Sensation, Has Backfired, Leslie Scism – Wall Street Journal

  • More complex products sold to individual consumers (e.g., Universal Life policies) tend to generate more market conduct problems than simple products (e.g., term life insurance).

2003 0701 – NCOIL – The Path to Reform – The Evolution of Market Conduct Surveillance Regulation – 117p

  • “I would urge the ACLI (American Council of Life Insurers) as a trade organization of carriers that they need to recognize this is a public relations disaster,” he <Richard M. Weber> said. 

2018 – Industry Pressured To Find UL Policy Fix, John Hilton – insurancenewsnet.com – [link]

  • US Economic Stability
  • Capital Formation
  • Capital Markets
We are seeing a real crisis in confidence:
   – That, in my mind, is probably the worst thing that could happen.
   – There is not a company in the country that can stand runs that Commissioner Weaver was talking about, where people ask for $1 billion in policy loans and surrenders in a 2-week period.  (p13)

—  William McCartney, William, Director of Insurance, State of Nebraska and Vice President, National Association of Insurance Commissioners

1991 0729 – GOV (House) – Regulation of Insurance Companies and the Role of The National Association of Insurance Commissioners – [p286p]

WHAT? – What may the Consumer not be Informed about?

  • ….. buyer purchased a policy and did not know what the coverages, benefits and limitations were. 

1988 Proc. II 566.

NAIC – Universal Life Model Regulation, Proceeding Citations, Section 8.  Disclosure Requirements

  • Life insurance, because it is a nontangible product, is extremely susceptible to being perceived as whatever people think it to be.

—  Larry Silkes

1983 – SOA – Universal Life Valuation and NonForfeiture: A Generalized Model,  Shane A. Chalke and Michael Davlin, Society of Actuaries – 72p

  • Also, because most people presume that if you pay your premium continuously, your policy will remain in effect, quite a few people had a hard time understanding how or why the policy would terminate in policy year 31.
  • This was simply foreign to their way of thinking.

1990-1A –  NAIC Proceedings – NAIC LIMRA – Universal Life Disclosure Form Test Market Results – 10p

  • Chalke and Davlin point out that a policy that provides whole life benefits assuming 10 percent interest is not a whole life plan if the guaranteed cash value is only 4 percent.
  • Such a plan is term insurance only for a period of years. 

—  Thomas G. Kabele

1983 – SOA – Universal Life Valuation and NonForfeiture: A Generalized Model,  Shane A. Chalke and Michael Davlin, Society of Actuaries – 72p

As in every other business, an insurance agent’s primary enterprise is to sell insurance, a vocation no adult consumer would confuse with a religious order.[12]

 

Concomitantly, a reasonable buyer of insurance (or any other product) must, at peril of caveat emptor, act as a reasonable consumer, e.g., research her needs from multiple sources and price-shop for policies.[13]

1998 – Legal Case –  Weisblatt v. Minnesota Mut. Life Ins. – [Justia.com-link]

WHO? – Who could / should Inform Consumers?

NAIC?

  • If radical changes in the way we illustrate policies were going to be made, they had to start at the NAIC.

— Frank S. Irish (Actuarial Standards Board)

1996 – SOA – Professional Standards Affecting Life Actuaries, Society of Actuaries – 18p

  • Industry activist Kim O’Brien became the latest to call on the National Association of Insurance Commissioners to intervene during a  conference call this week.

2018 – Industry Pressured To Find UL Policy Fix, John Hilton – insurancenewsnet.com – [link]

  • …..Richard M. Weber, a longtime life insurance agent and executive….. is not looking to regulators to address the UL crisis.

2018 – Industry Pressured To Find UL Policy Fix, John Hilton – insurancenewsnet.com – [link]

  • They are complaints about things that we can’t do anything about because the contract might be a Universal Life type product with Nonguaranteed Elements, and there is no regulatory framework to deal with those issues.
  • Those complaints just fall by the wayside because there is nothing that can be done. 

— Mr. Gorski <Regulator> 

1996 – SOA – Nonforfeiture Law Development, Society of Actuaries – 23p

  • We want you to know that Financial Education is important, but that many other groups are better situated to design deliver and evaluate education than NAIC is.

2020 01 – NAIC – Retirement Security – Conference Call –  Brenda Cude / Kitt Presentation

ACLI?

  • I think ACLI needs to convene its members and say ‘Hey, guys, we need to come up with a solution

—  Richard M. Weber>

2018 – Industry Pressured To Find UL Policy Fix, John Hilton – insurancenewsnet.com – [link]

  • ACLI’s ability “to engage on individual policyholder issues with individual life insurance companies is highly limited,” said spokesman Jack Dolan in an email.

2018 – Industry Pressured To Find UL Policy Fix, John Hilton – insurancenewsnet.com – [link]

Agents?

  • Our purpose in commenting today is to emphasize to Working Group members and interested parties the important role that the professional agent plays in the disclosure and consumer education regime that is at the heart of the Working Group’s efforts.

2019 0826 – NAIFA Letter, Gary Sanders – NAIC Life Insurance Illustrations Working Group

  • …key issue … perceived by the CLUs and ChFCs responding to the survey as causing the greatest problems for those working in the life insurance industry at the time.
  • #1 – Lack of knowledge or skills to competently perform one’s duties.

2011 – JFSP – The Ethical Environment of the Life Insurance Industry: The Impact of the Recession and Slow Recovery. by Robert W. Cooper, PhD and Garry L. Frank, PhD – Journal of Financial Service Professionals – [link]

  • Mr. Wright <Chairman> said the Society of Actuaries report referred to the fact that companies said they had no control over what agents did.

1994-4, NAIC Proceedings  

Federal Government?

  • Mr. SHAFFER. You argue on page 4 of your testimony that manipulation of the elements of the policy should be controlled by the Regulators.  Yet, you also a the States is inadequate. Why has not the NAIC established a central office to deal with manipulation?
  • Mr. MOORHEAD*. I think that the NAIC people are relying too much on the ability of the buyer to pick a manipulated policy out, and I do not think they should be putting that responsibility on him. I think it is their responsibility.
  • Mr. SHAFFER. Well, if the consumer cannot protect themselves against manipulation and the will not. How should this regulatory problem be resolved?
  • Mr. MOORHEAD. I guess if the consumer cannot and the State will not, the Federal Government would have to.  (p519)

*Mr. E. J. Moorhead, Actuarial Consultant to the NAIC and to the Subcommittee on Anti-Trust and Monopoly of the Judiciary Committee of the United States Senate.

1978 0807/0814/0815- GOV (House) – Life Insurance Marketing and Cost Disclosure – Congressman Moss – [PDF-826p-govinfo.gov-page]

Who? – Who could be blamed for an UnInformed Consumer?

  • While I agree with Angele <Khachadour> when she says that the insurance industry has failed to communicate, I also agree with the insurance industry’s response that these absurd and crazy-quilted policies have been caused in part by the Judiciary.

—  Frederick W. Kilbourne

1981 – SOA – The Life Insurance Business–The View of Consumerists, Society of Actuaries (rsa81v7n38) – Daniel F. Case – Moderator – 18p

  • Some of our problems, however, have been caused by regulatory bodies. 

—  Barbara J. Lautzenheiser

1981 – SOA – The Life Insurance Business–The View of Consumerists, Society of Actuaries (rsa81v7n38) – Daniel F. Case – Moderator – 18p

  • But, insurance regulators and consumerists go off the track when they want to drown the consumer with excessive information.
    • Then it becomes counterproductive because the consumer will not look at it at all. It becomes the same as junk mail.

—  Harold G. Ingraham, Jr.

1981 – SOA – The Life Insurance Business–The View of Consumerists, Society of Actuaries (rsa81v7n38) – Daniel F. Case – Moderator – 18p

  • It caused many problems for the industry; it caused many problems because the press got involved, and the press doesn’t understand the products as well as it thinks it does.

—  Linda M. Lankowski

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

  • …..there is virtually no accountability for any of the participants in the sale, not for the company, not for the agent, and interestingly, the white paper discussed accountability on the part of the purchaser as well. Accountability is a major issue.”

—  Robert E. Wilcox – Chairman of the Life Insurance Disclosure Working Group (NAIC)

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

HOW?

  • The working group’s concern was how to bring about a change without damage to the marketplace.

1993-4, NAIC Proceedings

MEDIA

  • Linda M. Lankowski:  I think any way that we can make illustrations more understandable to the public is certainly going to help us.
    • We’ve seen the problems that have occurred when Senator Howard Metzenbaum (D–OH) was given an illustration with a vanishing premium, and he had absolutely no idea that he had bought a policy that was not paid up in four years.
  • It caused many problems for the industry; it caused many problems because the press got involved, and the press doesn’t understand the products as well as it thinks it does.

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

EDUCATION

  • The educational task is huge, and it’s not just with the customers; it’s with our agents also.
    • I would say to all of you that if you think that you don’t have any customers or any agents who fail to understand what a nonguaranteed illustration really means, you’re kidding yourself. 

 — Walter Miller

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.
  • Obviously, there are two adjustment points whereby that can be accomplished.
    • One is that you can change the outcome to match the expectations.
    • The other is to change the expectation to match the outcome

—  Robert E. Wilcox,  Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • Monitoring of litigation may alert regulators to issues that the regulatory system has not yet addressed. 

2008-3, NAIC Proc

http://archives.chicagotribune.com/1984/10/30/page/29/article/how-law-changes-cash-value-rules-of-life-insurance#text

1973 Regulation of Variable Life Insurance by Tamar Frankel

13

The supervision of state authorities over filed policy forms is not an effective substitute for an informed decision by purchasers.

LAW

Words and Concepts 

  • Duties – Duty to Speak, Duty to Read
  • On Notice
  • Puffery
  • Reasonable Person / Reasonableness / Reasonable Expectations 
  • Reliance – Justifiable, Reasonable 
  • Statute of Limitations 

Sales Process

  • The agent, as a result of not understanding the illustration, may misrepresent the product to the consumer.

— Judy Faucett

1992 – SOA – Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • Mr. Wright said the Society of Actuaries report referred to the fact that companies said they had no control over what agents did.
  • Mr. Morgan responded that the regulation could deal with that explicitly by saying the company is responsible.

1994-4, NAIC Proceedings

  • The way the contracts were sold and marketed (e.g., a universal life contract sold as low premium term insurance or primarily for investment purposes). (p156)

2007 – IAA (International Actuarial Association) – Measurement of Liabilities for Insurance Contracts: Current Estimates and Risk Margins, /Dublin2_item8a – IAA ad hoc Risk Margin Working Group – 170p

  • …..the agents may not understand the product or its illustration.
    • I was in a meeting where I asked an agent about the interest rate that was shown on the illustration, and he didn’t know whether that was the interest rate before or after the bonus was paid.
    • He then turned to the person sitting next to him, who was representing the company, and that person wasn’t sure what the interest rate was either.
  • The agent, as a result of not understanding the illustration, may misrepresent the product to the consumer.
  • Finally, agents may not have the expertise for that particular market, but they believe that having the illustration in front of them makes them capable of selling to the market.

—   Judy Faucett 

1992 – SOA – Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • [Bonk: re: Universal Life]
    • If that is the case, how does an agent program somebody?
    • How does he tell a person what he needs to pay to keep his premiums level or to have paid-up insurance at age 65?

—  Allan W. Sibigtroth

1979 – SOA – Future Trends and Current Developments in Individual Life Products (rsa79v5n44), Society of Actuaries – 24p 

  • Someone had raised a question earlier about agent training.
  • What the agents know about their products, how well they present them, and how they use them is key to IMSA.

—  Paul V. Bruce

1998 – SOA – Market Conduct: A New Actuarial Frontier, Society of Actuaries – 20p

2/22/2018
LIBG WG		 Academy Letter
NGE WG Re:
Comments on the
“Revised Draft 2-9-18”
exposure draft for the
Life Insurance Buyers Guide
Gabe Schiminovich
Ian Trepanier,
Binder 4 p164 		Section #1: Since there are many sources knowledgeable about insurance, such as insurance agents, company representatives, financial planners, registered investment advisors (RIAs), Certified Public Accountants (CPAs), and attorneys, we recommend referring to individuals knowledgeable about life insurance and providing some examples.

 

  • About the same time that we were entering the Universal Life business, Universal Life brought about a change in the way we think about sales.
    • Replacement used to be a dirty word.
    • We have all heard some talk about twisting, and it has strong negative connotations.
  • Universal Life, mainly because of its premium flexibility, has changed that.
  • I recently heard one of our marketing people refer to replacement of old traditional permanent policies with Universal Life.
  • ⇒  He called it “The Enlightened Liberation of Assets”.

—  Stuart Grodanz

1984 – SOA – Variable Universal Life, Society of Actuaries – 22p

  • Let’s go back to the question of understandability.
    • With no standardized format being utilized, many of the illustrations currently in use are far too complex for the average consumer or applicant to understand.
    • In many cases the selling agent does not understand what he is presenting, and this needs to be addressed.”

—  Robert E. Wilcox,  Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

Vogt v State Farm, Case 2:16-cv-04170-NKL Document 186-1 Filed 01/19/18

  • Issue:  Universal Life sold as Permanent / Whole
    • 2xxx– LC – Fairbanks v. Farmers New World Life  —  [BonkNote]
      • The complaint set forth a litany of alleged facts misrepresented or concealed from policyholders, including, but not limited to, the following: (a) Farmers marketed the policies as permanent insurance, but the policies would actually lapse before maturity;
  • 2010 – LC – Maloof v John Hancock – Alabama Supreme Court Opinion – 39p
    • “The gravamen of their complaint was that Glasgow had misrepresented to them ….that the policies would provide benefits that would be available to pay any estate taxes due upon John’s death….
    • …..in fact, based upon the projected insurance and interest rates at the time of sale, those policies would likely lapse when John was approximately 78 years old unless the Maloofs at some point substantially increased the amount of the premiums they paid.”
    • (20) – However, the Maloofs could not have reasonably relied on the alleged misrepresentations concerning the availability of benefits from those policies to pay estate taxes due upon John’s death in light of the clear language of the insurance policies.
    • (22) – Thus, the undisputed facts indicate that Glasgow in fact fulfilled the Maloofs’ request to procure life-insurance policies that would provide funds that could be used to pay estate taxes upon John’s death, and those policies were canceled only after the Maloofs failed to pay the required premiums.
  • NAIFA
  • Regulation
    • LIIIWG
      • Richard Wicka
        • How do Agents use these?
      • Jodi Lerner
        • 2019 9 3 LIIIWG -If it was me, I already bought the Life Insurance policy.  I already went through whatever Medical Exam I needed.  I’m not going to look at this <Policy Overview when Policy was delivered>.  I’m done.
      • Universal Life Model Regulation – Page 5

        • Drafting Note:  Although highly flexible, universal life insurance is generally considered a permanent life insurance plan. Most companies encourage a premium level which will provide lifetime insurance protection. Every universal life insurance policy of which the drafters are aware has a “net level premium” that could be computed which would guarantee permanent protection. As a result, it is expected that most universal life insurance policies will be sold as permanent plans.

  • IULISG – IUL Illustration Subgroup
    • Illustrations
      • Vincent?   Primary Use of Illustrations is Comparison for new policy purchase
      • Woman – I hope Illustrations aren’t used for Comparison
      • 1999-4 NAIC Proc. – Mr. Foley responded that, if consumers want to compare policies, they have the illustrations to do so. He opined that is better than an index.
    • Agents
      • Wildcard
      • Moore – 6% x Multiplier = 9% Illustrated – Agents don’t know that
  • Premiums –
    • Target Premium
      • SOA –  
    • Planned
    • Guideline Level Premium
  • Legal Cases
    • Vogt
      • Mrs. Depo – Same as other WL
    • Video
      • Johansen – not your normal policy
      • Elhouty – Different from Traditional Permanent
  • ACLI
    • SOA – Tozer – what people expect…premium
  • LIMRA
    • Shopping Podcast
  • Actuarial
    • SOA – Agent – I didn’t know Costs Came Out
    • SOA – Miller – 
  • Agent Training
    • 1999-4 NAIC Proc.
      • Mr. DeAngelo said there had been a suggestion that Section 2A(1)(c) be revised. He said if materials for agents are misleading or incomplete, then agents may in turn mislead the public.
      • Mr. DeAngelo said he did not recall seeing incorrect or misleading training materials, so this is somewhat a theoretical question.
      • Mr. Hanson responded that he had seen misleading materials in market conduct examinations.
      • Diana Marchesi (Transamerica) said this language would then be broad enough to include material designed to inspire agents to sell more for the company.
  • LIMRA
  • 2005 – SOA – Regarding Your Direct Response Office, by Pete Jacques & Ronald R. Neyer, As published in the Winter 2004 edition of LIMRA’s MarketFacts Quarterly, ndn-2005-iss49-jacques-neyer – Society of Actuaries – 8p
  • NAIFA / NALU
    • 2017 0207, NAIC Proceedings – LIBGWG, Life Insurance Buyer’s Guide Working Group – Conference Call
      • Gary Sanders (National Association of Insurance and Financial Advisors-NAIFA) agreed that use of the term “cash value” was confusing.
  • I’d like to stress that agents don’t pretend to know the answers.
  • Sometimes it’s like picking a style of an automobile: I know the model I like, I know the company I’d like to back-up the automobile I purchase, and I even enjoy using and driving it, but I don’t pretend to know how the design engineers came up with all the features of the car I chose.
  • I think the analogy comes through in the life insurance business on a very simplistic plane – we don’t have the answers that I believe the actuaries do. It is our intent to ask for your help because we’re currently living with problems that lack solutions. — Robert Nelson
  • I’m not saying that we are trying to circumvent the system, but consider for a minute that I don’t sell a considerable amount of insurance by saying, “Let me tell you all that’s wrong with this product.
  • In addition, let me clearly explain the risk that you are about to assume.”
  • So where in the ideal sales process does this get communicated?   — Robert Nelson
  • JAMES F. REISKYTL, Actuary:  Bob, if I were coming to you to buy a policy, how would you tell me to compare whatever you’re selling?
    • You said you offered policies for three or four companies.
    • How do you compare those policies and tell me which one I should buy?
  • MR. NELSON, Agent / NALU: “Inadequately” would be the short answer.
  • I sincerely believe we have a flawed instrument in today’s sales illustrations.
  • It is neither a reason to condemn our industry nor pretend our industry should have been immune to change, especially with the economic realities of the past few years.
  • But we did not communicate the impact of change as well as we should have, especially the impact of change on the numbers we used in our sales illustrations.
  • So our challenge is to learn and to respond. I sincerely believe it’s a  shared responsibility by all of us – agents, the actuarial profession, company leadership, regulators and even the consumer.
  • Our biggest mistake would be to delay. I don’t believe the consumer will tolerate or forgive us, let alone the regulators, if we do nothing.  — Robert Nelson (NALU / NAIFA)

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

  • Academic
  • www2.imms.com/members/3rdparty/AmerCol/regbook/chap6d.htm
    • Business-Getting Activity
    • Insurance regulators exercise a substantial measure of control over the methods by which insurers and their agents obtain business. Such control seeks to enforce a higher standard of competition than that prevailing in other fields of endeavor and to protect the insurance consuming public against practices detrimental to their interest. State unfair trade practices acts and regulations promulgated thereunder constitute a major element in achieving these purposes.
    • Misrepresentation in Getting Business
    • Solicitation and Advertising in General
    • Misrepresentation for the purpose of inducing the payment of an insurance premium was adjudged more than 100 years ago to be a crime in Massachusetts. 

Marketing

  • We have all heard some talk about twisting, and it has strong negative connotations.
    • Universal Life, mainly because of its premium flexibility, has changed that.
  • I recently heard one of our marketing people refer to replacement of old traditional permanent policies with Universal Life.
    • He called it “The Enlightened Liberation of Assets”.

—  Stuart Grodanz, Travelers

1984 – SOA – Variable Universal Life, rsa84v10n4b12 – Society of Actuaries –  22p

  • …a great deal of our problem is caused because the people out there marketing our life insurance products are trying to market it against and like mutual funds.
    • Until we start to market it as life insurance and describe it and teach the consumers about life insurance, they’re not in any position to make those kinds of judgment calls

—  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

1995 – SOA – Current Developments Surrounding Regulations and Standards of Life and Annuity Products, Society of Actuaries – 18p

  • Historians have, perhaps, been too preoccupied with mortality tables and the founding dates of companies to consider the astonishing influence that selling method, or the lack of it, has had upon the development of life insurance in every age.

1942 – Book – Marketing Life Insurance: Its History in America, by J. Owen Stalson

  • 1942 – Book – Marketing Life Insurance: Its History in America, by J. Owen Stalson
  • 1961 – SOA – Marketing Trends, Society of Actuaries – 10p
  • 1976 – LR – Marketing Mutual Funds and Individual Life Insurance – 125p
  • 1979 – SOA – Marketing Systems, rsa79v5n18 – Society of Actuaries – 18p
  • 1982 – AP – Using Information-Processing Principles in Public Policymaking – Marketing – 21p
  • Marketing
  • A. By urging agents to upgrade their prospecting, is the life insurance industry forsaking a market and inviting government sponsored life insurance programs?
  • B. Would it be in the consumers’ best interest if the life insurance industry sold a greater portion of permanent insurance? What is being done, or should be done, to emphasize permanent insurance more in such areas as advertising, sales promotion, plan design, field compensation, and production credits?
  • C. Is it possible to make new plans available to present policyholders by change or by rider addition without too expensive a process?

1962 – SOA – Discussion of Subjects of Special Interest: Marketing, tsa62v14pt2d29 – Society of Actuaries – 8p

Suitability

  • There should be suitability rules in place, particularly for cash value life insurance policies to assure that sales of proper products are made.  (p14)

--  J. Robert Hunter

2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  —  [BonkNote]

  • 2000 - NAIC - Suitability of Sales of Life Insurance and Annuities, LIAC - Life Insurance and Annuities (A) Committee - 33p
  • New York - Regulation 187 - Suitability and Best Interest in Life Insurance and Annuity Transactions - New York State Department of Financial Services Insurance  (11 NYCRR 224)
  • Suitability Working Group – NAIC
    • 1999-4v2, Suitability Working Group
    • 2000-1
    • 2000 – NAIC – Suitability of Sales of Life Insurance and Annuities – 33p
    • The working group reviewed the white paper (Attachment Four-B)
  •  
  • Law Reviews
    • 2002 - LR - My Customer's Keeper: The Search for a Universal Suitability Standard in the Sale of Life Insurance, by Richard J. Wirth, Western New England Law Review - 51p
    • 2013 - LR - Suitability and Non-Maleficence: A Proposal for Insurance Producer Regulatory Reform, by Mark Franke, Loyola - 35p
  • Lawsuits
    • 1958 - Knox v. Anderson, Hawaii
    • 2010 - Pike v. New York Life, New York
  • Mr. Adams asked if it was the intent of the working group to consider placing the burden of suitability on the company.
    • He said the draft language speaks of using a correct illustration, without emphasizing whether the illustration is of a policy that is right for the policyholder.

1994-3, NAIC Proc. 

  • Universal Life might well be a more appropriate product than Adjustable Life for the very sophisticated, very high premium, as you mentioned, product or sale.
    • However, I think that there is a major segment out there where Universal Life Just would not fit.
  • Universal Life seems to be taking a giant step forward.
    • Adjustable Life may be a reasonable middle ground which our agents and our potential policyholders can understand a little bit better than the Universal Life concept at the present time.

--  Spencer Koppel

1979 - SOA - Future Trends and Current Developments in Individual Life Products (rsa79v5n44), Society of Actuaries - 24p 

  • John Montgomery (Calif.) said that complicated products are not understood by the typical applicant.
  • Commissioner Wilcox said that a "typical applicant" for a sophisticated policy should be a sophisticated applicant, and he acknowledged that the wording might need to be clarified in that instance.
  • [Bonk: complicated products ~ Universal Life, etc]

1994-3 - NAIC Proceedings

  • SUITABILITY OF SALES OF LIFE INSURANCE AND ANNUITIES
  • Issue: Should insurers be required to consider the suitability of the sale of a life insurance policy or annuity contract to a customer?
  • Background: During discussions about annuity disclosure, regulators expressed concern that in some cases annuities were being sold when the contract was not suitable. Research indicated only a few states had specific standards in their codes requiring insurers to evaluate the suitability of sales of insurance products. A working group drafted a white paper that concluded that rules should be developed requiring that suitability be determined by the producer and carrier in the sale of nonregistered life insurance and annuity products.
    • The working group noted that suitability standards have existed for over 40 years for registered products and they seem to have worked well. Nonregistered products are becoming increasingly complex and the investment components and the emphasis placed on these components in sales have become more prominent. Relying on disclosure alone no longer is enough, in the opinion of the Life Insurance and Annuities (A) Committee. During 2003 a model regulation was adopted that sets forth standards and procedures for recommendations to senior consumers age 65 and older to consider the insurance needs and financial objectives of the senior consumers. Although drafting began with a comprehensive model covering all sales of life insurance and annuties, the compromise document adopted in the fall of 2003 is limited to sales of fixed and variable annutites. Regulators had reported the most concern about unsuitable sales in this catagory. The adopted model makes both insurers and producers responsible for determining that a recommendation is suitable.
  • NAIC Position: Sales should consider adopting the model to provide protection to seniors purchasing annuity products. (p57)
  • Originated: 2001, Revised: 2002, 2003, 2004

2004 - NAIC - ISSUES 2004 - 118p

1 site_soa.org _life insurance_ _suitability_ -exam - Google Search

2 site_soa.org _life insurance_ _suitability_ -exam - Google Search

SEC - Suitabilty

Confusing

  • If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.
  • Obviously, there are two adjustment points whereby that can be accomplished.
    • One is that you can change the outcome to match the expectations.
    • The other is to change the expectation to match the outcome.

—   Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • Conflicts between Foundations and the Views of the Public
  • The foundations of actuarial science are not so esoteric or so abstruse that the average well-informed business person has great difficulty in  understanding them.
  • There are, however, points at which the actuarial view and that of the general public can come into conflict.
  • Actuaries will do well to recognize where these potential trouble spots are, and to do what they can to resolve misunderstandings.  (p78)

1989 – SOA – Fundamental Concepts of Actuarial Science, by Charles L. Trowbridge – 90p

  • We have to get out of our mode of talking about these policies in language that can only be understood by the person who wrote the language.
    • I find, after 30 years plus of experience in the life insurance business, that there is jargon used in illustrations that I don’t understand.
    • I can have difficulty in taking an illustration and figuring out what in the world the authors are trying to illustrate and how they are doing it.

—   Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • It is of great importance at the present moment that sound principles on the subject of insurance should be widely and rapidly disseminated.
  • Whether they act by producing conviction, or opposition, a step is equally gained:
    • nothing but indifference can prevent the public from becoming well acquainted with all that is essential for it to know on a subject, of which, though some of the details may be complicated, the first principles are singularly plain. 

1838 – Book – An Essay on Probabilities, and Their Application to Life Contingencies and Insurance Offices, by Augustus De Morgan

  • Mr. Bryant, Actuary of the New York Insurance Department:  The mystery of life insurance!
    • Why, there is not the least mystery in it.
    • The only mystery is, how it has managed to live so long on the reputation of having a mystery, which it has not.  [Laughter] (p128)
  • Gustavus Smith, Kentucky, Insurance Commissioner:  My attention was incidentally called to the subject of life insurance some year and a half ago, and when I found upon what a peculiar and very simple theory it is based, I was utterly amazed to think how little the thing was generally understood, and that the insuring public were utterly ignorant of what it was all about.
    • The committee of which I am chairman has before it for consideration this peculiar element of life insurance which I refer to, and I think if the members of the committee will closely attend to and study over that matter, they will have different views when they come back of the theory of life insurance from those which they had when they came here.
    • My opinion is that every intelligent man ought to understand this peculiar theory, and I hope that the beginning which we have made here, and the communications sent in and referred to the various committees, will spread before you an amount of information which will enable you to get out what I think has been kept a secret a little too closely and a little too long.
    • We will find that the mysteries of the actuaries’ art is no mystery at all, and that when they are fully comprehended there will be safety. (p128)

1871-1, NAIC Proceedings 

Fee for Services / Consulting

  • Jesse included in his comments an indication that  the industry would trend towards levelized commissions and perhaps a fee for the extra service performed in the first year.
  • Didn’t we see that there was an opportunity for the industry to move towards an extra fee with the Universal Life product?
    • Didn’t we lose our chance with the trend towards high first year commissions on the Universal Life? 

—  Paul Overberg

1983 – SOA – Individual Life Insurance, Society of Actuaries – 22p

  • 1987 – SOA – The Flexible Compensation Market, rsa87v13n220 – Society of Actuaries – 24p
  • She further noted that the amendments would require disclosure to consumers if fees were to be charged in addition to commissions for the sale of insurance.
  • The chair then called for comments.
  • Jack Burbidge (IDS Life Insurance Co.), chair of the advisory committee, noted that the advisory committee had not met since May 19 and that, therefore, it would be impossible to speak for the group.
    • It was his understanding, however, that the advisory committee was generally in favor of the amendments, but did worry that the amendments as proposed could conflict with some states’ insurance consultants laws.
    • He noted that 27 states have consultant laws which are not uniform and which could be in conflict with the amendments as proposed to the Model Unfair Trade Practices Act.
    • He noted that he had suggested an amendment to the exposure draft proposal (Proceedings, 1989, vol. I, pp. 85-86) in a June 2.

1989-2, NAIC Proceedings

  • Fee for service still is a very new and novel approach, as most of you are aware, but it is something that is evident in the marketplace.
    • I think LIMRA, in a study which they completed last year, said from 10% to 20% of all agents out there do charge fees.
    • You will find that many agents who are charging fees, on top of the normal commission products, are not willing to cut their commissions immediately.

—  Fred Jonske

1984 – SOA – Individual Term Portfolio Management, Society of Actuaries – 22p

  • The other thing you will find is that the surge in that direction will also be somewhat impeded by states.
    • There are a number of different state laws regarding fees for service.
    • Not all states allow an agent to charge fees, and they run the gamut from some states stating that if you charge a fee, you cannot recieve a commission to others permitting the agent to receive both.
    • If you charge a fee, you may have to be a licensed consultant.
      • That is a problem.
    • Also, if you don’t have a separate company set up to handle “fee for service” business, you may find some states hesitant to permit you to have two products side-by-side, one that is fully loaded for commission, and another one that is discounted for the lack of commissions.
      • This is because a few states disregard the difference in the allocation of distribution costs and perceive this as discrimination.

—  Fred Jonske

1984 – SOA – Individual Term Portfolio Management, Society of Actuaries – 22p

  • (p16) – Finally, we recommend that the NAIC, the FTC, or both, study how to encourage (a) the development of professional insurance consultants who would provide advice to consumers for a set fee, and
  • (p58) – One answer is that agents should charge a fee for their counsel, thus receiving compensation for their efforts whether or not a policy is sold. This approach, of course, is reflected in our “fee-for-advice” recommendation. Practically speaking, however, insurance advisors will be able to serve only those consumers who are out to “buy” insurance.
    • Consumers who must be “sold” insurance, that is, who buy only after being contacted and affirmatively encouraged by an agent, probably cannot be effectively served except by a commission-funded sales force.249 We observe that such consumers will likely value an agent’s service, and are likely to place their business with a company that their agent serves,250 rather than with a company that has lower costs but no agents at all.251  In our view, the demise of the agency system is simply not a likely consequence of cost disclosure.

1978 12 – GOV (House – Report) – Life Insurance Marketing and Cost Disclosure Report Together with Dissenting Views, John Moss (D-CA)  —  [BonkNote]

Focus Groups / Consumer Testing

  • We hear a lot about, “we did some market research and we found that this percent of our policyholders didn’t know what it was buying.” 

—  Justin N. Hornburg

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

  • A great deal of the confusion seems to stem from a lack of understanding of how cash value insurance products work and a lack of understanding of insurance terminology.
  • Also, because most people presume that if you pay your premium continuously, your policy will remain in effect, quite a few people had a hard time understanding how or why the policy would terminate in policy year 31.
    • This was simply foreign to their way of thinking.
  • One person was so confused that he said that the maturity age and endowment benefit were moot points, since the policy was going to end at year 31 anyway.

1990-1A, NAIC Proceedings – NAIC / LIMRA – Universal Life Disclosure Form Test Market Results, NAIC Product Development Task Force- 10p

  • 1979-2, NAIC Proceedings
    • Consumer Reaction to Cost Disclosure: An Annotated Bibliography of Studies
    • Life Insurance Committee Advisory Committee on Monitoring the Impact of the NAIC Model Life Insurance Solicitation Regulation
  • 1981 – AP – The NAIC Model Life Insurance Solicitation Regulation: Measuring the Consumer Impact in New Jersey, Roger A. Formisano – 22p
  • 2001-4V1, NAIC Proceedings – Do Product Disclosures Inform and Safeguard Insurance Policyholders? – 11p 
  • Joel Ario (Pennsylvania Insurance Commissionere… said the consumer complaint analysts in a state are a “focus group” that each state should rely on.

2009-3, NAIC Proceedings

  • 4) Illustrations Focus Groups
    • One of the key motivations of the working group is the conviction that an illustration should be more of an education tool than a sales tool. 
    • He said to be sure that the illustration format the working group devises will educate rather than confuse the consumer, the group has expressed an interest in having testing done with focus groups. 

1994-4, NAIC Proceedings

  • A survey was used in Fairbanks v. Farmers New World Life Insurance Co.85 to defeat a showing of materiality.
    • In that case, defendants relied on a survey commissioned by plaintiff’s counsel, in which 500 policyholders were asked if they would have purchased their policies had it been disclosed that the policies were not permanent.
    • A total of 47.4% of the respondents said they would still have purchased the policies.86
    • Citing the survey results, the court found that the materiality issue was subject to individual proof, and affirmed the lower court’s denial of class certification.87

2016 – LR – Recent Trends in the Use of Surveys in Advertising Law Disputes; an Update on the Case Law, by Kenneth Plevan – 45p

  • NAIC
    • Life Insurance Buyer’s Guide Working Group
    • Life Insurance Illustrations Working Group
    • Product Development Task Force
    • Consumer Issues Disclosure Working Group
    • Consumer Disclosure Issues Working Group
    • David Lyons (Iowa), William Hager (Iowa)
  • 1979-2, NAIC Proceedings
    • Consumer Reaction to Cost Disclosure: An Annotated Bibliography of Studies
    • Life Insurance Committee Advisory Committee on Monitoring the Impact of the NAIC Model Life Insurance Solicitation Regulation
  • 1990-1A – NAIC Proceedings – NAIC / LIMRA Focus Group – Universal Life Disclosure Form Test Market Results – 10p
  • 1993 – Policy Information for Applicant- Universal Life – 3p, Life Insurance Disclosure Model Regulation – Appendix D
    • Found in 1993 0525 –  GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance? – [PDF-354p-GooglePlay, No Video]->Not on govinfo.gov
  • 2001-1V2 – NAIC Proceedings – Do Product Disclosures Inform and Safeguard Insurance Policyholders? – 11p
  • ACADEMIC
    • 1972 – AP – An Empirical Investigation of Attitudes Toward the Life Insurance – Marketing – 181p
    • 1978 – AP – Consumer Accessing and Use of Information in Making Life Insurance Purchase Decisions, Jacob Jacoby – 124p
    • 1981 – AP – The NAIC Model Life Insurance Solicitation Regulation: Measuring the Consumer Impact in New Jersey, Roger A. Formisano – 22p
  • ACTUARIAL
    • 1982 – SOA – Universal Life Update, Society of Actuaries (rsa82v8n34) – 26p
    • 1991 – SOA – Illustrations, Society of Actuaries – 20p
    • 1991-1992 – SOA – Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries – 142p
    • 1996 – SOA – Nonforfeiture Law Developments (rsa96v22n38pd), Society of Actuaries – 23p
  • INDUSTRY
    • 2005 – SOA – Regarding Your Direct Response Offer, As published in the Winter 2004 edition of LIMRA’s MarketFacts Quarterly Barometer, ndn-2005-iss49-jacques-neyer – Society of Actuaries – 8p
    • MAP – “Monitoring the Attitudes of the Public”
  • LAW
    • 2014 – LR – The No Reading Problem in Contract Law, by Ian Ayres* & Alan Schwartz, Stanford Law Review – 66p
  • 3. Plaintiffs failed to prove consumer expectations
    • That failure properly doomed Plaintiffs’ claim. See, e.g., Clemens, 534 F.3d at 1026 (proof of UCL fraud claim requires proof of consumer expectations by class-wide evidence: “a few isolated examples of actual deception,” “personal experience,” “personal assumptions,” and personal “expectations” of named plaintiffs are insufficient).
    • Plaintiffs can hardly complain about the court commenting on the absence of survey evidence– Plaintiffs’ own expert testified that, without a survey, he could not opine about consumer expectations. ER791 59:18-21.

lswclassaction.com/docs/download/SANFRAN-%238165194-v1-2016_02_08_042_Appellees_Answering_Brief.pdf

  • To date, no state has adopted these forms.
  • Why this complete lack of action after all the effort in developing the forms?

—  Tony Spano, ACLI

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

⇒ [Bonk: “these forms” – 1990-1A, NAIC Proceedings – NAIC / LIMRA – Universal Life Disclosure Form Focus Group Summary  —   [BonkNote]  —  10p

  • John KELLER, Northwestern Mutual:  I’ll respond briefly to the suggestion that we use focus groups to get the consumer point of view.
    • We did consider that early on in our work and rejected it for a couple of reasons.
      • One was the time constraints we were under and the cost of doing focus groups.
      • But probably the most important reason is that if you get 15 people in a room who are recent purchasers of life insurance and then spend an hour or two dissecting the sales process and the use of their illustrations in that sales process, you’re likely to have 13 people coming out slightly or greatly disillusioned over what they just did.
    • We found that our field force and our marketing department didn’t like that idea at all.
    • So if somebody could think of a way to get to the consumer without causing real problems among recent buyers, who are our most fragile customers, we would like to hear it.
  • Judy FAUCETT:  In line with John’s comments, we were told by one group that actually runs focus groups that if you got a group of recent purchasers of insurance in a room, you might get responses of what they think they did or what they think they should have done, as opposed to what they actually did.

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • It seems more like we are focused within, and we are afraid to go out and ask the consumer, “What do you really want?”
  • Maybe we need to have some focus groups.
  • But, as I say, maybe that too would be a problem because we do not even know the right questions to ask because we have not educated our customer about our products and services. 

—  Larry J. Bruning

1996 – SOA – Nonforfeiture Law Developments (rsa96v22n38pd), Society of Actuaries – 23p

  • Baseline Consumer Surveys
  • Formisano’s survey of life insurance policyholders is now some 20 years old and is in dire need of updating and elaboration.
    • An important first step would be to survey groups of recently enrolled policyholders (e.g., universal life, long-term care, credit life) who have been exposed to the current generation of NAIC model disclosures.
    • The purpose would be to obtain baseline data about their exposure to and awareness of disclosure messages, comprehension of key disclosures, the beliefs and meanings they extract from product messages, and their ability to use disclosures correctly.
  • 3. Effectiveness of Disclosures
    • Commissioner Morrison asked the NAIC staff to report on the literature search on the effectiveness of disclosures.
    • Ms. Lindley-Myers indicated that the research centered on the effectiveness of disclosures and their usefulness as related to insurance products.
      • Unfortunately, there is very little information available on this topic.
      • With the exception of product liability and warranties, there is very little information involving disclosure in an insurance setting.
      • However, she indicated that Larry Kirsch of IMR Health Economics, LLC in Brookline, MA, had produced an issues generating paper entitled, Do Product Disclosures Inform and Safeguard Insurance Policyholders? (Attachment Three-C).

2001-4V1 NAIC Proceedings

  • 1994 1210 – NAIC – ATTACHMENT TWO-A – NAIC CONSUMER INFORMATION RESEARCH PROJECT
  • 1. PROJECT SCOPE
    • The project will be conducted under the oversight of the NAIC and the Consumer Information Working Group.
    • The design of the research and the release of the final report will be subject to the approval of the NAIC.
  • Tim Ghan (Nev.) presented a draft research proposal for a study of consumer information in personal lines insurance (Attachment Two-A).
    • The proposed study would involve three steps:
      • 1) a review of the relevant literature;
      • 2) an analysis of the extent of consumer information and its impact on competition and market performance; and
      • 3) an analysis of how consumer information could be most effectively enhanced.
  • Brenda Cude (Cooperative Extension Service at University of Illinois – Champaign/Urbana)
    • …noted the widespread lack of consumer knowledge about insurance, citing a Consumer Federation of America (CFA) study that found that the adults tested were able to answer only 54% of the insurance questions they were given.
    • She stressed the difference between consumer information and education and why both are important.
    • She added that there is a need for information that time-pressed and limited reading ability individuals can use easily at the point of need.
  • Sam Sarab (W.Va.) suggested that consumers could be surveyed as to the different information sources they have been exposed to.
  • Robert Klein (NAIC/SSO) responded that the personal lines market study would not analyze the quality of consumer information, as contemplated in the proposal.

1994-4, NAIC Proceedings

1996-2 Possitible Survey Topics
  • Commissioner Lyons reported that AARP will be doing a review with senior citizens on the readability and understandability of the disclosure form.
    • He reminded committee members that the working group will be doing additional work to determine whether these policies provide minimum values to consumers.
    • He said that decision would be made after an NAIC staff actuary completes a study of the value of these policies.
    • The working group plans to provide that information and its recommendations to the Life Insurance (A) Committee in 1991.

1991-1A, NAIC PRoceedings

  • Because of the concerns expressed by several states over the potential impact of the survey and at the suggestion of NAIC staff, a draft of the survey was forwarded to the Special (EX) Committee on the McCarran-Ferguson Act.
    • The Executive Committee designated Commissioner Earl Pomeroy, as chair of that committee and as the President of NAIC, to provide further input and direction.
    • Accordingly, on Sept. 10, I met with Commissioner Pomeroy, along with Mike Hessler (Ill.), Tom Reents (Neb.) and Art Chartrand (NAIC) to review these issues.
    • First, I wish to greatly express my appreciation to Commissioner Pomeroy for articulating his concerns and providing a productive framework for this subgroup to continue to carryout its charge.
    • As a result of that meeting, it was mutually agreed to suspend the activity on the current survey and to proceed as follows:
  • 2. Commissioner Pomeroy was very supportive of the subgroup recommending to EX3 Subcommittee that it pursue its investigation and make any appropriate recommendations in regard to the use of purported “consumer” groups fronting as leads or advertising agencies for insurance companies.

1991-1A, NAIC Proceedings

TO: Members of the Market Conduct & Consumer Affairs (EX3) Subcommittee
FROM: Brad Connor (Mo.), Chair of EX3 Subgroup on Unfair Trade Practices
DATE: October 11, 1990 .
RE: Meeting with NAIC Leadership on Subgroup’s Projects