SOA

1993 – SOA – Sales Illustrations – We Can’t Life With Them, But We Can’t Live Without Them! – Snippets

• 1993 – SOA – Sales Illustrations – We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries  —  [BonkNote]  —  20p   
  • Judy Faucett, former chairperson of the Society Task Force on Illustrations and chair of the Academy Task Force on Illustrations

• (p2) – Judy Faucett: Also in the fall, Senator Metzenbaum sent a letter to the NAIC describing the problems that he saw with today’s illustrations based on the hearings that he held in June.
  • The main problems that he saw were that buyers had no way to really understand what was and wasn’t guaranteed in the illustration.

• (p5) – Judy Faucett, former chairperson of the Society Task Force on Illustrations and chair of the Academy Task Force on Illustrations
• There should be a lot more focus on the need for in-force illustrations.
  • The policies that we sell today have so many moving parts and require frequent monitoring on an ongoing basis to make sure that the program is remaining viable, that enough premium is going into these policies to sustain them, and that the death benefits or cash values are structured the way that the policyholder expects them to build.
  • So, I think there’s going to be a lot more focus on in-force illustrations in the future.”

• (p6) – Judy Faucett, former chairperson of the Society Task Force on Illustrations and chair of the Academy Task Force on Illustrations
• We came up with a new approach that is currently being evaluated for feasibility.
• That is, each illustration would have a cover sheet that has four to six very basic notes that set the stage for what the illustration is all about.
  • It starts with, “This is a life insurance policy,” and gives the generic name of the policy such as participating whole life, universal life, second-to-die, etc.
  • It describes when the death benefits are paid.
  • The cover sheet also describes the premiums that are required to be paid under the policy on a guaranteed basis.
  • If the vanishing premium concept is shown,
  • It  would explain the concept of vanishing premium, deecdbe how it was sensitive to the current assumptions, and describe how changes in the assumptions could affect the vanish point.
  • It would disclose any unique features of the policy, such as persistency, bonuses, changes in the guaranteed values upon the first death, and structures of term and accumulation units in the base policy.
  • ⇒  All things would alert the consumer to some questions they should discuss with their agent so that they understand how the program is being structured and the underlying sensitivities.

• (p12) – Bruce E. Booker, Life of Virginia, (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations
  • The basic problem is that all of today’s products, no matter what the plan, design or the company, pass much risk on to the policyholder whether it’s the dividend scale, blending of face amounts, or current assumption cash values. The policyholder is taking more of the risk and the company is taking less, and we hope that’s reflected in the cost to the policyholder. But what does the policyholder know, what does he think and what does he expect is going to happen in the future?

• (p12) – Bruce E. Booker, Life of Virginia, (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations
  • The policyholder is taking more of the risk and the company is taking less, and we hope that’s reflected in the cost to the policyholder. But what does the policyholder know, what does he think and what does he expect is going to happen in the future?
  • If the contracts will not provide for coverage for life, for example, although they put the name whole life or universal life on them, some disclosure should be made.
  • We have to make clear to the policyholder that the illustration is not a prediction, it does not promise what’s going to happen.
  • The one thing that I really liked about the California regulation is its statement that the only thing we can say about these illustrated values is that they’ll never happen. I thought that was a wonderful statement, not one that we want said quite that bluntly, but it was very true.
  • If we can get away from having to show so much in the way of numbers and focus more on the concept, we can focus on what the need is, how this insurance is going to be used, and how it operates in that context. We’ve gone too far to making it look much more precise than it really is.
  • No one is rushing to adopt any of the existing models and very few of the states are doing anything to enforce current models that would certainly serve to stop any really outrageous illustration practices that are out there.
  • To really get a message across the face page should show that there’s a difference between contract guarantees and what the illustration is showing.
  • What can you say about the simplification problem and the overabundance of information?
  • ⇒  One of the reasons I was particularly enthralled with the concept of the cover page is because I’m concerned that we already have too many numbers.