Problem

Disclosure

• Disclosure – Index

• The purpose of disclosure is to let the life insurance buyer know what he’s getting. 

—  Russell R. Jensen

1977 – SOA – Cost Disclosure in Individual Life Insurance – Society of Actuaries – 18p

…. I agree that failure to disclose not only misrepresents but also sows the seeds of destruction. 

—  Allen D. Booth, FSA, is a consultant in the Milwaukee office of Towers, Perrin, Forster and Crosby 

1982 – SOA – Universal Life Update , Society of Actuaries (rsa82v8n34) – 26p

• Cost Disclosure
• Meaningful Disclosure
• Timing of Disclosures / Information to Consumers

• Life Insurance Disclosure Model Regulation – NAIC
• Life Disclosure Working Group – NAIC
• Manipulation, Lapsation, Dividend Practices and Annuity Disclosure Task Force – NAIC
• Universal Life Disclosure Form Test Market Results – NAIC

• I. Objectives of the New (A) Committee
• a. Simple disclosure form for universal type life products, as well as other simplified cost disclosure methods.

1982-2, NAIC Proceedings

• Abstract
• In the last ten years, life insurance consumers have endured unprecedented raiding of their policy cash values by replacing agents, have suffered through insolvencies of major companies, have been promised more than could be delivered in computer illustrations and agents’ sales pitches, and still lack any tools to comparison shop for cash value life insurance policies.
• Litigation is rampant; the lawyers have discovered new targets.
• The image of the business appears at its lowest ebb since the Armstrong Investigation of 1905. Insurance commissioners are at work to devise remedies for some of these problems, but appear to lack power to effect meaningful reforms.
• Life insurers retain the upper hand politically, which gets in the way of necessary reforms that put consumers first.
• Until consumers are served, rather than manipulated, life insurers will continue to lose market share to the mutual fund business.

1995 – JIR / NAIC – Life Cost Disclosure: Prospects for True Reform, By James H. Hunt, Consumer Federation of America Insurance Group formerly National Insurance Consumer Organization, CFA / NICO – 20p

• 1990 – SOA – Quality of Life Insurance Sales Illustrations, Society of Actuaries – 16p
  • Tony Spano (ACLI):  I’m going to discuss what Norm referred to as consumer disclosure forms.
  • ⇒  Policy Information for Applicant – Universal Life Policy – NAIC  — [BonkNote]
    • 1993 – NAIC – Policy Information for Applicant – Universal Life – Life Insurance Disclosure Model Regulation – Appendix D – 3p
      • 1993 0525 –  GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Senator Howard Metzenbaum (D-OH)
        • [PDF-354p] —  [PDF-345p-GooglePlay, No VIDEO] — [BonkNote] 
    • 1990-1A NAIC Proceedings – NAIC LIMRA – Universal Life Disclosure Form Test Market Results – 10p

• 4. Establishing Methodology for Reviewing the Appropriate Time for Delivery of the Guide to Buying Life Insurance After Age 60
• Superintendent Robert Willis (D.C.) stated his opinion that the sale of life insurance was a discovery process that could be harmed by disclosure of too much information too early in the process.
  • He thought there was not value in disclosure at the point of application.
• Mary Alice Bjork (Ore.) agreed that disclosure at the point of application or even delivery was not very helpful.
  • In her experience, most purchasers bought because they had confidence in the agent selling the life insurance.  (p250)

1993-1, NAIC Proceedings

• Commissioner Hager of the Universal & Other Plans (A) Task Force stated that there appeared to be disclosure problems with universal life plans and that the identification of these items should be placed on the Actuarial Task Force agenda.
• Some of the items identified which should be disclosed:
  • (1) what is guaranteed versus what is not;
  • (2) adequate disclosure of the fact that a premium quoted will not support the contract for the whole life if the policy is a universal life policy;
  • (3) disclosure of the guaranteed surrender values on a flexible premium policy.”

1988-2, Universal Life Insurance Model Regulation, Proceeding Citations

• 1977 – SOA – Cost Disclosure in Individual Life Insurance, Society of Actuaries – 18p
• 1979 – SOA – Cost Disclosure, Society of Actuaries – 18p

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• 1991 – SOA – Disclosure Systems: Can an Ideal Method be Found?, Society of Actuaries – 22p

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• 2020 – LR – The Simplicity In Modernizing Financial Disclosure, by Tyler Jacobs – 31p

• 2020 0724 – NAIC Life Insurance Illustrations Working Group Conference Call – ACLI – Pat Reeder
  • Idea of the Informed Consumer
  • 3 Broad Recommendations:
    • #3) Have a larger discussion about the disclosure and  buying process…  backed with data driven studies to understand when consumers need what information in the buying process.
    • Consider the information available at each point in time.

• (p280) – Richard Bryan (D-NV) – Is the concept of a disclosure offensive to you, assuming that you could get a disclosure that is not so highly technical as to be actually meaningless?
  • But I mean, is the concept of full disclosure at the point of sale, assuming that you could get something that is more understandable than the complexities might permit it to be? You can be so complex that nobody is going to read it, and those that do —
• Tom SUTTON, ACLI / Pacific Mutual 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 0227, 0507, 0509 and 0523 – GOV (House) – Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL)  —  [BonkNote]

• In closing, Madam Chairwoman, I hope that the future and the legacy of the Met will be that two concepts come into the world of insurance compliance, the concept of suitability and the concept of disclosure.
  • It is shocking in the 1990’s that a person who hands a mutual fund salesman a $100 bill gets a complete disclosure of the sales charge, the commission, who the players are, what the investment objective of that fund is…
  • …and yet that same person giving $100 to an insurance agent to buy an annuity product or a whole life product learns absolutely nothing about the internal workings of that product.  (p9)

—  Thomas Tew, Lawyer – a Joint-agency investigation into certain sales practices of Metropolitan Life Insurance Company.

1994 0528 and 0929 – GOV (House) – Deceptive Practices in the Sale of Life Insurance, Cardiss Collins (D-IL)  —  [BonkNote]

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

—  Bradley E. Barks

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

• Plaintiffs wrongly accuse the court of speculating about agent disclosures.
  • What the court concluded was that the non-uniform sales process inherently defeats Plaintiffs’ class-wide omission theory. ER791 49:11-50:3.
  • The trial record supports that conclusion, and is dispositive. See Kaldenbach v. Mutual of Omaha Life Ins., 178 Cal. App. 4th 830, 847-848 (2009)

http://lswclassaction.com/docs/download/SANFRAN-%238165194-v1-2016_02_08_042_Appellees_Answering_Brief.pdf – <Bad Link>

• 1988 Letter from Ted Becker Pertaining to Disclosure Statements for Universal Life Plans – Texas State Board of Insurance

ATTACHMENT TWO-A – SAMPLE DISCLOSURE STATEMENT, Specifications – For All Disclosure Statements, Draft: 12-11-88

 

1988-?, NAIC Proceedings

• Commission Disclosure
• Angele KHACHADOUR (attorney with the firm of Miller & Daar, Mill Valley, CA): The moment you talk about disclosing one portion of that premium, you’re going to have to start disclosing the rest of that premium and the allocation of every penny in that dollar.
  • It’s not fair to identify just the agent’s compensation, and have him confess publicly to getting 100% of the first year premium.
  • We agreed earlier that the buyer just looks at the overall price.
• Barbara LAUTZENHEISER: The consumerists I have heard talk, seem to be more concerned about the compensation to the agent than they have been about other specific costs within the policy.

1981 – SOA – The Life Insurance Business—The View of Consumerists (rsa81v7n17), Society of Actuaries – Daphne Bartlett- Moderator – 16p

• 1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote]  —   [PDF-592p]
• 1992 0623 – GOV (Senate) – Consumer Disclosure of Insurance, Senator Howard Metzenbaum (D-OH)  —  [BonkNote]  —  [PDF-323p-GooglePlay – VIDEO-?], 
• 1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Senator Howard Metzenbaum (D-OH)  —  [BonkNote]  —  [PDF-354p-GooglePlay,  VIDEO-?] 
• 2001-4v1 – NAIC – Do Product Disclosures Inform and Safeguard Insurance Policyholders –  11p 
• 2005 – JIR / NAIC – Insurance Disclosures: An Effective Mechanism to Increase Consumers’ Insurance Market Power?, by Brenda Cude – 25p
• 2007 – JIR / NAIC – Using Research to Help Make Disclosure Statements More Effective: A Case Study in Research Design and Implementation – 11p
• 2007 – JIR / NAIC – Consumer Disclosure as Consumer Protection, by Linda Lanam – 5p

• Commissioner Hager of the Universal & Other Plans (A) Task Force stated that there appeared to be disclosure problems with universal life plans and that the identification of these items should be placed on the Actuarial Task Force agenda.
  • The main concern was that an unsophisticated buyer purchased a policy and did not know what the coverages, benefits and limitations were.
  • “Some of the items identified which should be disclosed:
    1. what is guaranteed versus what is not;
    2. adequate disclosure of the fact that a premium quoted will not support the contract for the whole life if the policy is a universal life policy;
    3. disclosure of the guaranteed surrender values on a flexible premium policy”

1988-2, NAIC Proceedings, p566

• An actuary cautioned that life insurance disclosure issues have been the subject of ongoing debate since the 1970s, and addressing the problems could be an extremely challenging and time-consuming effort.
• [Bonk: actuary = Bart Munson, William M. Mercer Inc.]

1993 Proc. IB 788-789

NAIC Model Laws, Regulations, Guidelines and Other Resources-January 2011 – LIFE INSURANCE ILLUSTRATIONS MODEL REGULATION – Proceeding Citations – All references are to the Proceedings of the NAIC

• In the state of Maryland, a recently enacted disclosure regulation has two special features.
  • First, there must appear a statement in the disclosure form which warns that any oral statement of the agent should be considered in the purchase decision, but only if it is reduced to writing and given to the applicant.

—  Bill Snell

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

• 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

• One of the key things about interest rates that cannot be overemphasized is that there must be complete disclosure.
• The company cannot purport to pay 14 percent interest on cash values when it pays only the guaranteed rate on the first $I,000.
• This issue has received some exposure, but companies that pay less than the current rate on some minimum amount must disclose that fact.

—  Robert W. Buechner, President of the Legal Professional Association, Buechner, Haffer and O’Connell, Cincinnati, Ohio

1982 – SOA – Universal Life Update (rsa82v8n34), Society of Actuaries – 26p

 

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