Reasonable Expectations

  • 3. Heard a Federal Update on the Implications of the DOL Fiduciary Rule – Brooke Stringer (NAIC)
    • Micah Hauptman (Consumer Federation of America-CFA) said there are gaps in the current regulatory framework.
      • He said he does not believe consumers’ reasonable expectations are being met.
      • He said the DOL should require a fiduciary duty, regardless of what products are being sold or how they are being sold.
      • He said consumers all expect and deserve high quality advice without the taint of conflicts of interest.

2022 0407 – 2022-1, NAIC Proceedings –  LIAC – Life Insurance (A) Committee

  • 1970 – LR – Insurance Law Rights at Variance with Policy Provisions,” 83 Harv.L.Rev. 961, by Robert Keeton

Pyramid

  • B. Marketing and Operations
    • 1. Direct Marketing
    • a. Mail ,
      • b. Telephone
      • c. Fax
      • d. Seminars ‘
      • e. Television and Radio
      • f. Computer
    • 2. Agents – Licensed and Unlicensed
    • 3. Brokers
    • 4. Managing General Agents (MGA)
    • 5. Third Party Administrators (TPAs)
    • 6. Associations (profit and non-profit)
    • 7. Pyramids
    • 8. Multi Jurisdictional Operations (Operate in more than one state or country, making it difficult to investigate, regulate, prosecute or sue to protect insureds)

Unauthorized Entities Manual For State Department of Insurance – ATTACHMENT TWO-D1

1994-4 – NAIC Proceedings – Executive Committee

  • Commissioner Willis (DC) said he would not allow the demonstration of lapse-supported rates because it was perceived as a bonus.
    • He compared it to a pyramid scheme, only the opposite, because it started with many and ended with few. 

1994-3, NAIC Proceedings – Life Disclosure Working Group of the Life Insurance (A) Committee

Trust

  • 2005 – AP – The Role of Professional Organizations in Boosting Trust in Financial Business, by Brian K. Atchinson, The Geneva Papers on Risk and Insurance. Issues and Practice, Vol. 30, No. 3, Special Issue on Corporate Governance and Corporate Social Responsibility (July 2005), pp. 477-484 (8 pages)

Volatility

  • I think you really have to make sure that people understand volatility, whether you solve for a policy blowing up or values being halved.
    • I think you have to catch people’s attention, and that is all to the good.

—  George Coleman, Prudential, ACLI, TRG-Technical Resource Group for the NAIC (Industry Advisory Group – Illustrations)

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

  • 2019 0312 – 2019-1, NAIC Proc. – IUL Illustration (A) Subgroup, Conference Call 
    • Mr. Tsang said the illustration should be used to manage policyholder expectations and should show the volatility of returns, so the policyholder has a realistic picture of the risks.
    • Brian Lessing (AXA) said it is difficult to illustrate the volatility, which is why in-force illustrations are so important.

Benchmarks

  • Rodney C. Wilton: We cannot stop people trying to sell or design gold bricks.
    • As actuaries, all we can do is make it so people have a better chance of knowing what they are buying. The simpler a product, the more chance the prospective policyholder has to know it is a gold brick.
      • For instance, if it is a single premium deferred annuity, illustrated on a nonguaranteed basis at 15%, the policyholder has a good chance of knowing it may be a gold brick. What he needs is a benchmark.
      • People have a benchmark for interest rates.
      • In that respect, universal life is better than participating whole life since dividend scales do not have an interest rate attached to them. You can show a dividend scale that cannot be met and the buyer has no way of knowing that.
      • A simple set of assumptions could be established and a simplistic product could be defined.
      • If actuaries put that out, it would be a benchmark.
      • If somebody is trying to sell something a lot better, he can say, “Which of these assumptions are you bettering?
        • Do you have less expenses than are here?
        • Are you going to make more interest?
        • Are you assuming fewer are going to die, or are you trying to fool me?”
  • William TOZER: The ACLI Cost Disclosure Committee has not looked at this issue, but in the area of cost disclosure, it has tried to establish an industry benchmark and has had problems.
    • One is a mortality standard. The mortality standard varies considerably between salary savings market and the select underwriter market.
    • Expense standards would vary between smaller policies and larger policies. Is it more dangerous for a company to illustrate an average interest rate when it is earning a lower interest rate than someone illustrating an above average interest rate and earning that rate?
  • Rodney C. Wilton: I am not talking about mandating illustrations.
    • The company would be able to put out any illustration.
    • But if the illustration looked too good compared to an industry vanilla product, the client would have warning.

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

Resolution

    • 2014 1015 – FSB – Key Attributes of Effective Resolution Regimes for Financial Institutions – 98p
    • 2018 0227 – GIAJ to FSB – GIAJ comments on the FSB’s methodology for assessing implementation of the Key Attributes of Effective Resolution Regimes in the insurance sector – 2p
    • 2022 – FSB – Resolution Funding for Insurers Practices, Financial Stability Board – 28p

Common Sense

  • The fact that we charge people fees that we have disclosed and that fees reduce the value of your policy, and if your policy keeps reducing in value, it will lapse, is not a fraud.
    • That's common sense.
    • That's how life insurance works.  (p171) 

--  Closing Argument by Mr. Martens, (Defense Attorney, LIfe Insurance Company of the Southwest)

2014 0425 – DOC 813 – Trial Transcript – Day 12 – Walker vs. LSW – 224p

2010s - LC - Walker vs. LSW - Life Insurance Company of the Southwest  ---  [BonkNote]

 

Loopholes

  • gaps
  • (p27-30) – Q And did you end up sending the letter to the California Department of Insurance?
    A Yes.
  • …
  • Q Would you take a look at Exhibit 733. Is that one of the e-mail exchanges you had with Ms. Wilton at the Department of Insurance?
  • …..
  • Q Reading from your e-mail, 733: Thanks again for staying with me on this LSW policy. Sounds like you might have found an omission that just might work in my favor in terms of getting all my money back. The lack of stated reason for an amount percentage of fees taken out every month could be the loophole I need. What did you understand about the omission she may have found with respect to the fees?
    A I understood that it had to do with something with the fee structure.   <WishList e-mail, 733 [Exhibit]>

DOC 810 – Trial Transcript – Day 7 – Walker vs. LSW – 260p  —  [BonkNote]

2010s – LC – Walker vs. LSW – Life Insurance Company of the Southwest  —  [BonkNote]

  • Senator Chris Dodd (D-CT) – As a result of these interpretations, we have reached, in my view, the absurd point where we now have financial regulation by loophole.

1994 0203 – Congressional Record – Volume 140, Number 8  – [link] – congress.gov/bound-congressional-record/1994/02/03/senate-section

Insurance Sales Activities by Banks

  • Now as usual, things that are prohibited can nonetheless be done if you do them right.
    • The way to do it is either comply with an exemptive rule or get an exemptive order. 

—  W. Randolph Thompson, with the law firm of Jones & Blouchin Washington, will speak on some SEC issues

1993 – SOA – Variable Products — Product for the 1990s?, Society of Actuaries – 22p

  • One important lesson of the recent crisis is that as financial products and services proliferate and become more complex, they often fall through the regulatory cracks. (p16)

—  Testimony of Ann Yerger, Executive Director – Council of Institutional Investors – 106p

2009 0729 – GOV (Senate) – Protecting Shareholders and Enhancing Public Confidence by Improving Corporate Governance, (CSPAN) Improving Corporate Governance, Jack Reed (D-RI) – [PDF-252p, VIDEO-CSPAN]