LIIIWG - Life Insurance Illustration Issues Working Group - (A) - NAIC - Snippets

2015-3

3. Appointed a New Working Group to Address Life Insurance Policy Illustration Issues

The Life Insurance Illustration Issues (A) Working Group will:

Explore how the narrative summary required by Section 7B of the Life Insurance Illustrations Model Regulation (#582) and the policy summary required by Section 5A(2) of Model #580 can be enhanced to promote consumer readability and understandability of these life insurance policy summaries, including how they are designed, formatted and accessed by consumers.

Perspectives - Purpose of Group

  • 2016/4/3 - NAIC Life Insurance Illustrations Issues Working Group Conference Call

    • would result in consumers being better able to understand the product performance and interest variability of IUL products.

    • look at how all products are explained to consumers.

  • 2016/11/15 - <Birny Birnbaum>  said each model currently includes a list of the elements to include in the summaries, which is what has resulted in the Working Group’s current charge to make those documents more understandable.

2015

2015-1

3. Discussed the Appointment of a New Working Group to Work on Life Illustration Issues

  • Commissioner McPeak explained that during the Committee’s discussions concerning the adoption of Actuarial Guideline XLIX—The Application of the Life Illustrations Model Regulation to Policies with Index-Based Interest (AG 49), the Committee was asked to consider establishing a new working group that would conduct a comprehensive review of life illustrations to determine if, and in what manner, the Life Illustrations Model Regulation (#582) should be revised.
  • She suggested that in order to further refine what possible issues the proposed new working group could review with respect to Model #582, and possibly outside of Model #582, the Committee should set a 30-day public comment period within which to receive information from stakeholders on their issues and concerns and what needs to be address with respect to illustrations.
  • Commissioner Gerhart expressed support for Commissioner McPeak’s suggestion.
  • Birny Birnbaum (Center for Economic Justice—CEJ) also expressed support for the suggestion.
  • .He said it is important that state insurance regulators determine if illustrations are accomplishing what they are intended to accomplish, how they are being used and whether consumers understand them.
  • Mr. Birnbaum also suggested that illustrations should be consumer-tested.  
  • Commissioner Ridling made a motion, seconded by Commissioner McCarty, to set a 30-day public comment period to receive comments on what needs to be addressed in Model #582 with respect to life illustrations in order to establish a working group to perform that task. The motion passed unanimously.
  • He <Mr. Boerner-LATF> also suggested that it may be appropriate for the Committee to consider revisions to the Life Insurance Illustrations Model Regulation (#582) to address broader illustration issues, which could be a charge given to the Life Actuarial (A) Task Force or a new Committee working group.

2015-3

  • 3. Appointed a New Working Group to Address Life Insurance Policy Illustration Issues
  • ...she (Julie McPeak) said the Committee received comments from the American Academy of Actuaries (Academy), the American Council of Life Insurers (ACLI), the California Department. , the Massachusetts Mutual Life Insurance Company (MassMutual) and the NAIC consumer  representatives.
  • Mr. Schwartzer said that absent specific suggested revisions, he would urge caution in opening Model #582 for revision. He suggested tabling the discussion for now until the Committee receives specific suggested revisions. Ms. Froment expressed support for Mr. Schwartzer’s comments.
  •  the ACLI suggests enhancing simplicity and transparency of the narrative summary in Model #582 to reflect the significant changes in the marketplace since Model #582 was adopted 20 years ago, including the demographics of consumers who buy life insurance, the product designs developed to meet the changing needs of consumers and the technology consumers use to obtain information about life insurance products.
  • Laura Hanson (Academy) explained the Academy’s comments, noting that the Academy also suggests that the Committee consider revising the Life Insurance Buyer’s Guide, which was developed in 1995 at the same time Model #582 was adopted. She noted that it is woefully out-of-date and should be updated to reflect current life insurance products and features.
  • Commissioner Gerhart noted that some of the comments appear to merit some review of Model #582. Director Ramge agreed and made a motion, seconded by Commissioner Gerhart, that the Committee establish a new working group with a 2016 Proposed Charge to explore how the narrative summary required by Section 7B of Model #582 and the policy summary required by Section 5A(2) of the Life Insurance Disclosure Model Regulation (#580) can be enhanced to promote consumer readability and understandability of these life insurance policy summaries, including how they are designed, formatted and accessed by consumers.
  • . Mr. Birnbaum reiterated his support for revising Model #582. He said Model #582 is so outdated that, as a result, companies are presenting certain insurance products and illustrations for those products in a non-uniform way. As such, Model #582 needs to be revised to have uniformity.

2016

2016-1

1. Discussed its Work Plan

Mr. Schwartzer reminded the Working Group that the Life Insurance Illustration Issues (A) Working Group came out of concerns raised when the Indexed Universal Life (IUL) Illustrations (A) Subgroup under the Life Actuarial (A) Task Force

was working on guidance for IUL policy illustrations that would result in consumers being better able to understand the product performance and interest variability of IUL products.

During the IUL Illustrations (A) Subgroup’s discussions, interested parties expressed a need to take a broader look at how all products are explained to consumers.

2016/4/3 - NAIC Life Insurance Illustrations Issues Working Group Conference Call

  • Mr. Regalbuto said New York is releasing Insurance Regulation 74 focusing on universal life illustration issues and updated its buyer’s guide with respect to universal life.
  • Brenda Cude said the Buyer’s Guide needs a total overhaul, not just a revision. She explained that the products in the marketplace have radically changed since the time the Buyer’s Guide was first written.
  • The Committee agreed that because there is an existing charge to revise the Buyer’s Guide and the focus of the Buyer’s
    Guide is different from focus of the Working Group’s charge, the charge should remain as written.

2016-2

a. Life Insurance Illustration Issues (A) Working Group
Mr. Schwartzer reported that the Life Insurance Illustration Issues (A) Working Group met for the first time April 3 (Attachment Two). During this meeting, the Working Group heard from representatives from the ACLI and the CEJ  regarding issues to consider and possible approaches for completing its charge. The Working Group asked the ACLI for examples of policy summaries and narratives currently in use and plans to begin to look into consumer testing to inform the
Working Group as it moves forward. 

2016-3

6-4 NAIC Proceedings – Fall 2016

  • c. Life Insurance Illustration Issues (A) Working Group
    Ms. Stegall said the Life Insurance Illustration Issues (A) Working Group met via conference call Nov. 15, Oct. 20 and Sept. 20. 
  • She said the Working Group continued to work on a one- to two-page policy overview document to help consumers
    better understand specific life insurance policies.
  • She said the Working Group agreed on a draft list of key components that would be included in a policy overview document for term products. She said the Working Group agreed to begin work on key components in a policy overview of whole life policies.
  • She said the Working Group agreed to address key components of universal life policies after addressing whole life policies.
  • The Working Group plans to next meet via conference call

October 20, 2016

  • c. “Cost Information” Category
    • Mr. Birnbaum disagreed and said including data that does not apply is confusing.
  • Mr. Wicka suggested that work on the policy overview should start with term life policies before tackling the more complex whole and universal life products.

Consumer Testing

2016 11 15

  

He <Wicka>  said the ACLI has developed annuity disclosure templates to be used by insurers to comply with

the requirement of Section 5B in Model #245, and had them consumer-tested.

He <Birny Birnbaum>  said each model currently includes a list of the elements to include in the summaries, which is what has resulted in the Working Group’s current charge to make those documents more understandable.

2016 11 15

2017

2017-1

(6-3) The Working Group adopted a motion to bring a MLR to incorporate a policy overview document requirement into Model #580 and Model #582 to the Life Insurance and Annuities (A) Committee for its consideration.

<Birny Birnbaum> He said the requirements for the policy and narrative summaries in the models include a list of information that needs to be included, but that requirement has not yielded a consumer-friendly document. Mr. Birnbaum said that while he supports the development of a short policy overview, he does not want to preclude the Working Group later revising the policy and narrative summaries. 

2017-2

2017-3

2018

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2019

2019-1

2019-2

2019-3

2019 0917 - Life Insurance Illustration Issues (A) Working Group Conference Call 

Mr. Wicka reminded the Working Group that it had initially decided to add a requirement for a policy overview document in both Model #580 and Model #582 to fulfill the Working Group’s charge. However, in September 2018, the Working Group agreed to simplify the approach it had been working on by revising just Model #580 to include the requirement of a policy overview document to accompany all life insurance policies for delivery with the Life Insurance Buyer’s Guide (Buyer’s Guide). This new approach eliminates the need for revisions to Model #582.

  • c. Rewording Section 5A(2)(d)(v)
    • Ms. Winer said that disclosure is helpful, but only if it is meaningful. She said that providing too much information is confusing and not helpful.

      Mr. Birnbaum said there is no need to get too caught up in the details; he said just include enough information that a consumer could compare one policy to another and say, for example: The cost of insurance is between 1% of cash value up to 3% of cash value.

  • Mr. Wicka suggested including three elements: 1) cost of insurance charge; 2) net amount at risk; and 3) maximum allowable charge.
  • The Working Group agreed to the following revision to Section 5A(2)(d)(vi): (vi) If applicable, A narrative description  explanation of the cost of insurance fee, a narrative explanation of the net amount of risk to which the fee will apply, and other fees needed to keep the policy in force and how those fees may change over time the maximum allowable cost of insurance fee allowed under the policy.

g. Clarifying “Coverage Period Description”

  • The Working Group discussed what information is intended to be included.
  • Mr. Yanacheak said this is intended to capture how long a policy’s term is—a term of years or for life.
  • Mr. Birnbaum said it is intended to answer the question: If I pay my premium, this policy will cover x amount of time.
  •  Mr. Wicka suggested, and the Working Group agreed, to the following revised language to Section 5A(2)(e)(iii): (iii) Indicate whether it is a term or permanent policy. If it is a term policy, indicate the length of the initial term.

<Bonk: What about Universal Life?  

Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a "minimum" and a "maximum' plan....

The adoption in 1983 of the Model Regulation for Universal Life provided recognition that these policies could be configured as whole life policies.

1989-1 (p662), NAIC Proceedings

2020

2020-1

2020-2

2020-3

Mr. LYNCH (NAIC)
We would like to have a single sheet for all types of  policies. We found that it is very difficult to do that unless .... The disadvantage, as I said before, is that means a great many numbers and we feel those are confusing. So I am not sure that we will succeed in getting a uniform statement for both whole life and term insurance.

numbers. think thaé year-by-year osure can be very useful to 
sophisticated people, but our concern ig that you turn people off by 
giving them too many numbers right away. (p90)