MCESWG - Market Conduct Examination Standards Working Group - (D) - NAIC

  • 2017 0912 - NAIC - MCESWG - Market Conduct Examination Standards Working Group - (D) - 200p
  • 2017 0912 - NAIC - MCESWG - Market Conduct Examination Standards Working Group - (D) - 200p
    • (p7) - Historically, replacement ratios were quite low. This was due in part to the fact that the definition of a replacement under the “old” Life Insurance and Annuities Replacement Model Regulation (#613) only applied to life insurance products and external replacements. Under the prior model, either the producer or the insurer made a decision as to whether the transaction involved a “replacement.” The new model covers internal and external replacement and, if any funds for the new product come from an existing product, the transaction is a replacement and must be reported as such. There are several limited exceptions. Another factor in the increase in replacement activity is the tendency of consumers to move funds between investment and insurance products when the stock market fluctuates. In such transactions, an analysis should be performed to determine whether the insurer has systems in place to supervise its producers. Regulators should review transactions involving the sale or replacement of variable products involving the insurer and its products to verify that a system is in place to confirm that its producers are properly licensed. In the context of the examination, an examiner or analyst is only responsible for reviewing the conduct of insurance producers and conduct which requires an insurance producer license.
    • (p7) - Market regulators should also be aware that sales of products, such as fixed-index annuities (formerly referred to as equity-indexed annuities) and index life insurance products (such as universal index life insurance) continue to increase.
      • These products typically include features that require an understanding of bonuses, guaranteed elements and an array of interest-crediting methods.
      • In some cases, existing NAIC model laws and regulations may not give specific guidance on all aspects of all products. In such instances, examiners may rely on general principles found in the Unfair Trade Practices Act (#880), the
        Life Insurance Disclosure Model (#580) and the Annuity Disclosure Model Regulation (#245). The Life Insurance Illustrations Model (#582) sets out a variety of requirements to prevent insurers from using misleading illustrations in the sale of life insurance. Actuarial Guideline 49 – The Application of the Life Illustrations Model Regulation to Policies with Index Based Interest, was originally adopted by the NAIC in 2015, expands upon and supersedes some of the illustration requirements of the Life Insurance
        Illustrations Model (#582).. It provides guidance and limitations for Indexed Universal Life illustrations. In simple terms, Sections 4 and 5 of Actuarial Guideline 49 set maximum crediting rates for illustrations. Section 6 addresses illustrations of policy loans and Section 7 requires illustrations beyond those required in the Life Insurance Illustrations Model (#582). The implementation of Actuarial Guideline 49 was phased as follows: with implementation of Sections 4 and 5 of the Actuarial Guideline required for new business and inforce illustrations beginning September 1, 2015 and with implementation of Sections 6 and 7 required for new business and inforce illustrations beginning March 1, 2016. i. Sections 4 and 5 shall be effective for all new business and in force life insurance illustrations on policies sold on or after September 1, 2015. 
    • (p10) - Comment [AR5]: CEJ Comment – consistent with the rest of this list of documents, reference to the Models suggested in the CEJ letter was not included, mostly for consistency of form
    • (p13) - Determine if analogies between a life insurance policy’s cash values and savings accounts or other investments and between premium payments and contributions to savings accounts or other investments are complete and accurate.
    • (p14) - Index products - For advertising for interest-sensitive products, review explanations of the crediting methods and terms. Review the functioning of the crediting methods to determine that the explanations are understandable and accurate. Verify that accurate information is provided regarding the options available to the consumer and the methods by which the consumer is to exercise the options.
    • (p14) - In addition to reviewing the advertising of indexed products, the examiner should review the illustration for compliance with Model 582 to ensure that, among other things, unreasonable or deceptive crediting rates are not being used in the illustrations and that the illustrations provide the consumer with the information required by Model 582 and, for Indexed Universal Life products, AG 49.For Indexed Universal Life, determine whether the explanations and information provided regarding the options available to the consumer are consistent with the requirements and limitations presented of Model 582 in Actuarial Guideline 49 – The Application of the Life Illustrations Model Regulation to Policies with Index Based Interest.