Illustrations as Roadmaps

  • This was an optional idea that we called “Illustrations As Road Maps.”
    • The concept is that instead of letting the actual performance of a Universal Life policy diverge over time further and further from what was originally illustrated, you could send policyholders a notice each year on the anniversary, if the results are below what was illustrated.
    • A letter would state the need to pay an additional amount to get back to what was illustrated, because interest rates are lower.
    • This would have two advantages.
      • First, it would keep people on track with their illustrations.
      • Second, it would help people understand the workings of their universal life policy.”

—  John Keller, Northwestern Mutual

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • 2016 – Assurity Resources – Consumer Issues Associated with Guaranteed Universal Life Policies – NAIC, LIIIWG, Life Insurance Illustrations Working Group – 11p 
    • “Off Track”
  • Performance, results, projections, How is the policy doing?, coverage period, duration

Illustrations – Uses

  • 2015 0816 –  NAIC – LIAC CC, NAIC Proceedings
    • 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
  • Question:  Should Illustrations be used to compare poilcies? What is the purpose of Illustrations?
    • YES – Mr. Foley responded that, if consumers want to compare policies, they have the illustrations to do so.  —  1999-4 NAIC Proceeding
    • YES – NAIC Working Group Actuary, Illinois?
    • No – Texas Insurance Commission Rep?  “I hope not.”
  • As we began researching this problem, two questions became central.
    • What criteria should we use to evaluate suggested changes and alternatives?
    • What is the root cause of current problems, and why have previous corrective efforts been so unsuccessful?
  • As research continued, at some point we started to focus on the uses of life policy illustrations.
    • This proved to be a key concept in addressing those two major questions.
    • First, let’s list the major user groups: (1) consumers, (2) agents and brokers, (3) life companies, and (4) third-party analysts.
      • We are all familiar with the first three groups.
      • The third-party analyst is a more recent phenomenon and could be a CPA, consulting….”

—   John R. Skar, Fidelity Mutual 

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • For Sales / Replacements vs Managing Performance
  • Walker v LSW  – Consumer Survey Expert
  • 1991-1992 – SOA – Final Report* of the Task Force for Research on Life Insurance Sales Illustrations: Under the Auspices of the Commitee for Research on Social Concerns – Judy Faucett (Chairperson), tsr917 – Society of Actuaries  —  [BonkNote]  —  142p
    • Appendix II – Illustration Examples
    • *Opinions expressed herein are those of the Task Force for Research on Life Insurance Sales illustrations and of the Committee for Research on Social Concerns. This report does not purport to represent the views of the Society of Actuaries or of its Board of Governors.
    • Benjamin J. Bock,  Bruce E. Booker,  John W. Keller, John R. Skar, Linden N. Cole
  • In considering the specific questions posed by the Subgroup, we found it helpful to take a step back, and to first consider two more fundamental questions:
    • (A) What is the purpose of illustrations? (p6-844)
  • Although illustrations can be used for many purposes, the following seem primary to us:
    • To help consumers understand the mechanics of products, that is, their features and how they will operate, as opposed to how they will perform, which can’t be predicted or estimated;  (p6-844)

2019 310 – Letter – AXA Equitable (Brian R. Lessing) to NAIC IULISG – Indexed Universal Life Illustrations Subgroup (Fred Andersen – Chair) – 2019-3, NAIC Proceedings

  • Churning will be high as comparisons of recent performance and illustrations will “prove” the necessity for a switching.

—  Dale R. Gustafson, Northwestern Mutual

…asks why the really hard questions about the product aren’t reflected in the articles we printed. His nominees for the hard questions are:

1981 11 – SOA – The Actuary, Society of Actuaries – 6p

In-Force Illustrations

  • It would be most useful if the updated illustration was designed to fit the needs of the policy owner.
    • The insurer won’t have this information.

1995-1, NAIC Proceedings

  • 2015 0515 – Letter – AXA Equitable, Brian R. Lessing, to NAIC (LATF)
    • However, we believe that all sections of the guideline should apply to all inforce life insurance illustrations after some effective date, regardless of when the policies were sold, since if the new limitations on the illustrated crediting rate are appropriate for new business, similar reasoning implies that they should also be appropriate for all inforce policies.
  • 2019 0312 – NAIC (IULISG) – IUL Illustration Subgroup
    • Brian Lessing (AXA Equitable):  difficulties….  Inforce Illustrations become a critical tool, not only for IUL, but for all …. They would be very helpful….adjusting premiums for example. [Bonk: Not in Proceedings]
  • I’d like to take that one step further.
  • What I noticed was there is a requirement for in-force illustrations, and people may have thought they bought one thing and whenever you have to give them an in-force illustration with a current disciplined scale, they’re going to realize they bought something else.
    • I think many companies will have serious problems with policyholder retention.

—  Mark J. Greene, FSA. MAAA, Supervising Actuary, New York State Insurance Department

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

  • The Larry Gorski Amendment that was adopted says in-force illustrations cannot be less favorable than sales illustrations or the actuary would have to disclose that; the idea is that buyers would be able to find out that a company was utilizing a bait-and-switch strategy in its illustrations.

1996 – SOA – Update on Life Insurance Illustrations, Society of Actuaries – 24p

  • 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.”

—  Judy Faucett, former chairperson of the Society Task Force on Illustrations and chair of the Academy Task Force on Illustrations

1993 – SOA – Sales Illustrations – We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries  —  [BonkNote]  —  20p

  • Finally, we need to provide the agent the capability to do in-force Illustrations.
    • That way we can keep policyholders up to date, we can provide fair comparison when the policyholder is trying to decide whether to buy a new policy, and enable the agent to provide follow-up service to clients.
  • This is an expensive service as we’ve all seen with in-force illustrations, but it is necessary if you want happy customers.

—  Bruce E. Booker

1993 – SOA – Sales Illustrations – We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries  —  [BonkNote]  —  20p

  • In my mind, the problem occurs not at the time of illustration, but in our deficiencies in reillustrating the products in the annual report.
    • Many times it appears that the insured is attempting to buy something and his question is “What can I pay for eight years that will pay up a certain level of death benefit?”
    • I think two things happen even if, for example, he does get an annual report of a universal life plan and his question isn’t answered.
    • “How much more does my premium have to be to achieve my original results?”
    • We’ve taken some steps to try and eradicate that by using comments and various codes on our master file.
    • We reillustrate every year and we invite the insured to send us a letter saying, “This illustration doesn’t meet my needs. I wanted to know this bit of information,” so they can take proper steps to recognize the change in interest rate environment.
    • Much of our “reappearing” vanishing premium problem could have been eradicated by an early warning system that says, “The interest rate environment has changed. You need to increase your premium by 20% to achieve your original goal.”

—  Christopher H. Hause

1995 – SOA – Current Developments Surrounding Regulations and Standards of Life and Annuity Products, Society of Actuaries – 18p

Illustrations – Media

  • 1992 – The Telegraph (New Hampshire) – Uncover Truth in Life Insurance, by Jane Bryant Quinn – [link-GoogleNews]
  • 1994 0708 – Chicago Tribune / Kiplingers – Looks Can Be Deceiving, by Kristin Davis – 
  • 1996 0716 – The Buffalo News – Prudential Case Shows Need for Insurance Industry Reform. by James Odato –
  • 1996 0107 – Chicago Tribune / Washington Post – Imperfect Picture of Insurance Illustrations, by Jane Bryant Quinn –
    • When you buy a life insurance policy, the agent may show you something called a policy illustration.
    • First, Sen. Howard Metzenbaum threatened a campaign to impose federal regulation.
      • Then, a blitz of consumer complaints began to blot the reputations of some of….