NAIC/Consumer Liaison Committee – NAIC

NAIC/Consumer Liaison Committee - NAIC

2023 0321 - NAIC/Consumer Liaison Committee - 6p
- (p3-4) - Richard Weber (Life Insurance Consumer Advocacy Center—LICAC)
- 5. Heard a Presentation Calling Attention to the Dilemma of Current Assumption Policy Illustrations
  - Weber provided some simple graphic views of variable universal life policies and said an illustration showing a $5,900 annual premium with an illustrated rate of return of 10% had only an 8% probability of success of actually covering a policyholder until age 100.
    - Weber said consumers should buy policies based on the probability of success rather than the lowest premium. Weber said a policy with a constant illustrated rate of return of 4.4% would need an annual premium of $16,500 to reach a 99% probability of success.

2023 1130 - NAIC Proceedings - NAIC/Consumer Liaison Committee - 21p
9. Heard a Presentation on How Much Life Insurance Purchased in the U.S. Becomes a Death Claim
- Richard Weber (Consumer Representative) provided a presentation based on the paper Lapse-Based Insurance, published in 2016 and updated in 2021. The paper was written by David Gottlieb (London School of Economics and Wharton School, University of Pennsylvania) and Kent Smetters (Wharton School, University of Pennsylvania).
  - 2016 - AP - Lapse-Based Insurance, by Daniel Gottlieb and Kent Smetters - 83p
  - 2021 (Update) - AP - Lapse-Based Insurance. American Economic Review, 111 (8): 2377-2416, by Daniel Gottlieb and Kent Smetters - 101p
- Weber said most individual life insurance policies lapse before expiration. Weber said over 70% of U.S. families own life insurance, and annual premiums exceed $110 billion. Weber said between 1990 and 2010, there were $30.8 trillion in life insurance issued and $24 trillion in life insurance lapses. Weber said 25% of permanent insurance policyholders lapse within just three years of first purchasing their policies, and 40% lapse within 10 years. Weber said nearly 88% of universal life policies ultimately do not terminate with a death-benefit claim, and almost 85% of term policies fail to pay a death claim.
- Weber said lapses are more prevalent for smaller policies and are more exposed to background shocks, including unemployment, medical expenses, and new consumption opportunities. Weber said insurance agents receive most of the sales commission in the first or second year and, anecdotally, consumers are more likely to lapse their policies when they are not in contact with their sales agent. When policies are sold primarily based on the illustration, Weber said customer dissatisfaction may result when they see lower results than initially illustrated. Weber said commissions continue to be the driver of sales behavior in a number of cases and lapses often follow a failure to consider the client’s best interests and the suitability of the recommendation.
- Weber requested state insurance regulators to review how policy illustrations should be prepared under current state regulation and evaluate the experience of the New York Department’s Insurance Regulation 187. Weber said state insurance regulators should move toward requiring insurance carriers and insurance producers to only make policy recommendations that are suitable to the consumer’s circumstances and place the client’s interest above the interest of the producer.

2008 0728 - NAIC Proceedings - MCAS, Daniel Schwartz, Birny Birnbaum, Trade Secrets

2008-3, NAIC Proceedings - 2008 0922 - NAIC/Consumer Liaison Committee
- 3. Transparency and Public Accountability
- (15-3) - Mr. Birnbaum stated that the failure of American International Group (AIG) was largely due to a lack of public accountability and a lack of transparency in the regulatory environment.
  - Mr. Birnbaum highlighted the following regarding transparency:
    - he urged the NAIC to issue a resolution immediately opposing the AIG bailout and against using it politically to push the need for the Federal Option (Paulsen Plan);
    - he stated emphatically that state regulation was not the cause of the AIG collapse, but that it demonstrates how important it is for states to step up and take appropriate action;
    - (15-4) - Commissioner McCarty said he agrees with Mr. Birnbaum regarding the failure of AIG.
- Mr. Birnbaum said the NAIC acts like a public entity when it goes before Congress and when it signs international agreements with foreign regulators, but when it comes to accountability to the public, Mr. Birnbaum said the NAIC is a trade association from Delaware.
- Mr. Bridgeland said he was disappointed that he had to spend so much time over the years at the NAIC pushing for an open records policy for basic public records.
  - Mr. Bridgeland said individual states do a good job; however, requests to the NAIC fall on deaf ears. For instance, annual statements are not freely available in electronic format. They are required to be submitted, and they are clearly public records.
- Transparency is vital in the financial marketplace, as evidenced by the AIG situation.
  - The NAIC issued a press release regarding AIG and transparency.
  - It quoted Commissioner Praeger as saying "that it keeps everyone honest."
  - Mr. Bridgeland said the NAIC must practice what it preaches and stop hiding vital information.

2008-4, NAIC Proceedings - 2008 1205 - NAIC/Consumer Liaison Committee
- (15-3) - 2. Concerns Regarding AIG Bailout
  - Brendan Bridgeland (Center for Insurance Research) said that his organization recognizes that the financial difficulties of American International Group (AIG) did not stem from the sale or management of any specific insurance product but rather stemmed from the peculiar financial gamble called credit default swaps.
  - The provision of the bailout that is of particular concern is the tie to AIG's insurance subsidiaries to the rescue of the parent holding company.
- During the last national meeting, the NAIC announced the creation of the AIG Special (EX) Task Force to address the crisis with the following charges:
  - (1) overseeing the regulatory activities related to the AIG insurance subsidiaries and coordinating interaction among state regulators, federal government officials, company representatives and international regulatory interests; and
  - (2) creating a Form A Subgroup to manage communication of information related to the sale of subsidiaries by the AIG holding company.
- The NAIC and insurance regulators were quick to issue press releases denying blame for the holding companies woes, repeatedly stating that AIG's insurance subsidiaries were strong.
- Regulators also moved rapidly to assure the public of the solvency of individual insurers and warned against other market participants using AIG's crisis to scare customers into abandoning AIG and its subsidiaries.
- AIG insurers should not be sold or transferred to companies that have a bad record of policyholder treatment.
- There is also the subject of corporate governance disclosures, as the AIG compensation packages and entertainment expenses became the subject of public outrage.
- Mr. Bridgeland said the NAIC greatly restricted the disclosure of lobbying expenses and executive salaries in annual statements over the protests of consumer representatives.
- Clearly there are public policy concerns about executive compensation and company expenditures, similar to the scandals that rocked the insurance world in 1905 when it was revealed that many insurers had spent huge sums on extravagant parties for their executives and associates.
- Regulators must get a better handle on wasteful spending and outlandish salaries.
A number of commissioners then recognized that while they are able to suggest public policies, the final policies that require legislative changes come from the state legislatures.
- With this, the commissioners recognized the benefits of continued input and pressure from organized consumer groups asking for change.
- Commissioner Tyler recognized the general lack of consumer advocacy in the state of Maryland and said this is a weakness in the current system of policy development. (; Ralph S. Tyler; (MD))