Glossary

  • William Koenig (Northwestern Mutual) suggested that the parties all needed a common understanding of the terms used in their discussion.

1993-4, NAIC Proceedings

  • The ‘unbundling’ of services and other product differences between Universal Life and Ordinary Life cause current literature to be inapplicable, as well as insufficient, for Universal Life .

1984 – Academy Journal

  • It has been said that a chrysanthemum by any other name would be a lot easier to spell. It occurs to me that approximations by any other name would be a lot easier to sell.
  • Pursuing this thought further brings to light the fact that our nomenclature in this field is not only poor semantics but also far from precise.

—  E. Allen Arnold

1955 – SOA – Analysis of Approximate Valuation Methods, Society of Actuaries – 16p

  • [Birney Birnbaum – Glossary]
  • He [Michael Lovendusky – ACLI] said his initial concern is that a glossary adds pages when the Working Group is trying to develop a very short overview.
  • Mr. Birnbaum said his idea was to have the glossary on the back-side of a singlesided overview.
  • Ms. Lerner said she likes the idea but thinks there will be a space problem with overviews of more complex life insurance policies.
  • Mr. Wicka asked whether the Life Insurance Buyer’s Guide includes a glossary and whether it might make sense to think about how this glossary could be included with the Life Insurance Buyer’s Guide revisions.
    • He also asked whether this could be added to the definitional requirements that are already part of the illustration.

2017 0917 – LIIIWG Conference Call, NAIC

  • Mr. Birnbaum also said it is reasonable to include a glossary along with the policy overview, especially for people who are receiving a paper policy overview.
  • Ms. Micale [ACLI] responded that this is an overview of a term life insurance policy and not a comparison shopping tool. She said it would be unreasonable to require the more than 300 different life insurance companies to provide customized glossaries.
  • Mr. Yanacheak said insurance companies using the same term to mean different things is concerning and an issue that should be resolved.
  • Ms. Winer suggested looking into whether the NAIC microsite Insure U would be a good spot for a glossary.
    • Ms. Mealer agreed with Ms. Winer’s suggestion

2017 1019, LIIIWG NAIC

  • Meantime the policy contains all these many words presumably to make clear to the insured what the coverage is. We concede that all this verbiage is now “required” by law or regulation but is it essential?
  • Perhaps the new Committee on the Valuation and Non-Forfeiture Laws may find it desirable to say something about the relatively unintelligible verbosity of the policy contracts. 
  • Surely some of the criticism about the complexity of the policy should be heeded by the industry.

1973 02 – SOA – The Actuary – Editorial by ACW (Andrew C. Webster), p2 – 8p

  • The working group discussed the advisability of including definitions in the model act or the regulation.
    • The working group decided it was more appropriate to include these in the regulation.
  • Mr. Albus [NALU/ NAIFA] pointed out that the definitions needed to also include a “man on the street” definition, after the group had agreed on the definitions with the actuaries.

1993-4, NAIC Proc.

  • 3. There should be a glossary of terms included with the form, either up front or at the end of the form but with a note upfront that the applicant will find a glossary at the back of the document.
  • A reading of the body of this report will make evident which terms should be included in the glossary.

1990-1A, NAIC Proceedings – NAIC / LIMRA – Universal Life Disclosure Form Test Market Results – Focus Group – CIDWG – Consumer Issues Disclosure Working Group – (A) – NAIC  —  [BonkNote]  —  10p

Unbundled

  • The “unbundling‘ of services and other product differences between Universal Life and Ordinary Life cause current literature to be inapplicable, as well as insufficient, for Universal Life. 

1984 – Journal – AAA – American Academy of Actuaries 

  • I would like to ask how many people here have received requests for such unbundling from the public. (No hands were raised.)

— Walter Miller [Prudential]

1981 – SOA – Equity for Existing Policyowners, Society of Actuaries – 24p

  • 1983 – SOA – Product Unbundling Strategies, Society of Actuaries – 14p
  • 3) Since Universal Life is an “unbundled” product, the cost of each of the elements is disclosed to the buyer.
  • Consumers have demonstrated their unwillingness to commit dollars to heavily loaded products.

1982 – SOA – The Universal Life Update (rsa82v8n22), Society of Actuaries – 16p

  • John Dinius (Aetna) said that he represented a universal life company and said that an illustration that unbundled everything would look more complicated and that would affect sales. 

1995-1, NAIC Proc.

  • Higher interest rates and inflation have reduced the market share for the traditional life insurance products.
  • There appears to be an “unbundling” of the insurance and investment features of the life insurance product. Level premium, whole life, cash value insurance is giving way to a combination of term insurance with an investment element in short-term securities or equities.

1983-2, NAIC Proceedings

  • There are certain constraints which automatically bind a universal life policy when you take this narrow approach.
  • The first one is that if, in fact, the policy is an unbundling of the reserve structure, the gross premium after removing policy loads (the premium actually deposited into the fund) must equal the valuation net premium.

—  Shane Chalke

1984 – SOA – NAIC Update, Society of Actuaries – 24p 

  • Unbundling
  • Because the policyholder must generally pay premiums in advance, virtually all insurance contracts have an implicit or explicit deposit component that would, if it were a separate instrument, be within the scope of IAS 39.
  • Some examples of deposit components are:
    • (b) components for which a policyholder assumes all or most of the investment risks (as with some types of unit-linked (variable) contract).
    • (c) an interest-bearing account value, as in some universal life contracts.

No. 1540-100 ⏐ AUGUST 2, 2007 – Financial Accounting Series – INVITATION TO COMMENT

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

Understanding

  • What they did not understand, they did not find useful.

1990-1A – NAIC Proceedings – NAIC LIMRA – Universal Life Disclosure Form Test Market Results – 10p

  • We have to get out of our mode of talking about these policies in language that can only be understood by the person who wrote the language.
    • I find, after 30 years plus of experience in the life insurance business, that there is jargon used in illustrations that I don’t understand.
    • I can have difficulty in taking an illustration and figuring out what in the world the authors are trying to illustrate and how they are doing it.

—  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • Memorandum of Law in Support of American General Life Insurance Company’s Motion for Summary Judgement
    • See Watkins v. HRRW, LLC, 2006 WL 3327659, at *8
      (“Tennessee courts, however, have rejected breach of fiduciary duty claims against insurance agents in various factual circumstances.”);
    • see also Weiss v. State Farm Fire & Cas. Co., 107 S.W.3d 503 (Tenn. Ct. App. 2001) (finding that an insurance agent had no duty to explain plaintiff’s coverage or make sure she understood her policy).

2016 – LC – Ianello v American General Life Insurance Company  —  [BonkNote] 

  • “I think it fair to say,” said the commission chairman, Michael Pertschuk, recently, “that no other product in our economy that is purchased by so many people for so much money is bought with so little understanding of its actual or comparative value.”

1979 0930 – NYT – The Appeal of Life Insurance Fades, But Most Families Still Buy It, By Edwin McDowell  —  [BonkNote]   —  [link-]

  • Let’s go back to the question of understandability.
    • With no standardized format being utilized, many of the illustrations currently in use are far too complex for the average consumer or applicant to understand.
    • In many cases the selling agent does not understand what he is presenting, and this needs to be addressed.

—  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • During the course of….we ascertained that there were very few people within the Federal Government with an understanding of the insurance industry.
    • A staff memo…stated: “It appears that for many years the workings of the life insurance business have been misunderstood by those at the [Internal Revenue Service and Justice Department] associated with the question.”

—  Chairman John LaFalce (D-NY)

1979 1011 and 1022 – GOV (House) – Small Business Problems with Insurance – Part 1,  John LaFalce (D-NY)  —  [BonkNote]

  • MR. BAKOS: I think there’s another factor here that you have to consider, and I’d be interested in hearing Commissioner Wilcox’s view on this, and that is just the basic gullibility of people.
    • Yesterday we heard there are apparently some fairly sophisticated investors who invested $2 million expecting to double it in six months.
    • The basic premise with respect to life insurance is that there are values that are not guaranteed. 
    • It should be a very simple concept to get across and yet we’ve been unsuccessful.
    • If you have people out there who believe they can double their money in six months, how will you ever convince everyone that dividends are not guaranteed.

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

  • 240 CHAPTER 28 • Dictionaries, Vocabulary, and Spelling FOR TEACHING: Finding Information in Dictionaries (28a)
    • Consider demonstrating the keen usefulness of the information in dictionaries by bringing in a couple of legal contracts – say, from life insurance companies.
      • Reading these contracts calls for a sharp eye and a very clear knowledge of what each word means.
      • Materials describing one such life insurance plan, for example, contain the following terms: semiannual, net cost, underwrite, waiver, conversion, incontestability, and incapacitated.
      • Ask students to define each of these words, without – and then with – the help of a dictionary.
      • Which words would they want to make sure they really understood before signing a contract?

2011 – Book – The St. Martin’s Handbook, Instructor’s Handbook – 7th Edition – 492p

Investment Generation Method

  • New Money (Investment Generation Method) vs Portfolio Method
  • [Bonk: Investment Generation Files(37) NAIC]
  • However, it is far less clear as to how to make a fair, nonmisleading statement, about an investment year method illustration in comparison with a portfolio average illustration.
    • This will be one of the most difficult and important assignments of the Academy Committee.

1980-1, NAIC – Life Insurance (C3) Cost Disclosure Task Force

  • Suggested language which should accompany the illustration, must necessarily be brief.
  • We believe, however, that in all cases there should be an identification of the method of investment income allocation used, because of the significantly different illustrative result.
    • In addition, each required exception statement that appears in the suggested Schedule ii would also need to be briefly summarized.

1981 0602 – AAA to NAIC (Manipulation) – Journal, American Academy of Actuaries  Statement 1981-12 – p144-155 – 12p

  • To: National Association of Insurance Commissioners’ Task Force on Manipulation, Lapsation, Dividend Practices and Annuity Disclosure
  • From: John H. Harding, Chairman – Committee on Dividend Principles and Practices
  • SUBJECT: Report of the Committee on Dividend Principles and Practices
  • 1977 – SOA – Investment Generations Revisited, Society of Actuaries, by J. Edwin Matz And Franklin E. Peters, tsa77v2910 – Society of Actuaries – 54p
  • 1983 – SOA – Segmentation of Insurance Company General Accounts, by James A. Attwood and Carl R. Ohman, tsa83v3520 – Society of Actuaries – 38p
  • 1983 – SOA – Two Enhancements to Investment-Year Allocations of Income, by Barry T. Allen, tsa83v3512 – Society of Actuaries – 10p
  • If a company chooses to use an investment year method or an investment generation method, the committee plans to recommend that the actuary be responsible for more than a statement that such method is not comparable to a portfolio method.
    • For example, consideration will be given to the requirement of quantitative comparisons, such as, indicating the difference between the new money rate assumed in the dividend illustration and the portfolio interest rate and estimating

1980-4, NAIC Proc. 

  • 1. Report of the Advisory Committee on Policy Lapsation – Consumer Disclosure
  • The suggested changes to the buyer’s guide (Attachment One-B2) incorporate several new ideas.
    • First, while the current buyer’s guide describes the concept of cost and identifies the differences between illustrations of cost of participating and nonparticipating policies, the redraft recognizes the existence of cost illustrations of products recently introduced.
    • Second, the suggested modifications identify the difference between investment generation and portfolio average methods in the determination of dividends.
      • At the suggestion of the NAIC Advisory Committee on Manipulation, dividends based on investment generation methods are identified as being more sensitive to changes in current interest rates.
    • Finally, the suggested modifications recognize the existence of the newly adopted principles and practices and warn the prospective insured to be aware of any exception language which may be required on the illustration.

1981-2, NAIC Proceedings

Interrogatories

  • Lonnie Milton Graul:  Don’t you think part of the response to the interrogatories might be the choice of the lesser of two evils?
    • An honest response might be, “The rates we are currently illustrating are not supportable because we illustrate on the portfolio rate and the portfolio rate is higher than the new money rate.
    • If everything else stays the same, the credited rate is going to go down.”
    • If you gave that answer to the question and were in a major company and your competitor or a consumer advocate gets a hold of that, they can say, “Look, they are telling you a lie.”
    • What is the alternative? — Give an incomplete answer, an incoherent answer?
      • This seems to be the norm.
    • An insurance regulator might think the answer was inadequate but that is three or four years from now when they do an examination.
  • Larry R. Robinson, ACLI: You have pointed out a very real danger. 

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

  • One thing that should be reconsidered is the purpose of the interrogatories.
    • If they are truly intended to comment on the appropriateness of company illustrations, then we might serve our purpose better by requiring actuarial certification of the illustrations themselves rather than burying that opinion in the company’s statutory annual statement.

— Bradley E. Barks

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

Investment Risk

  • In the ACLl’s view, there is no investment risk to the consumer since the product typically carries a guarantee which includes principal plus four percent and since the interest to be earned beyond the guaranteed amount does not involve the kind of risk that is associated with securities.

—  Gary Hughes, ACLI

1982-1, NAIC Proceedings

  • One corporate reason is that several big life insurance companies got a nasty shock in the late 1970s and early 1980s when they found their bond portfolio down by about 30-40 percent and a negative cash flow.
  • They’re unhappy with their investment risk and happy to pass it on to the policyholder.

  — Michael R. Tuohy

1985 – SOA – Variable Universal Life Insurance, Society of Actuaries – 22p

  • In addition to transferring investment risk to policyholders, universal life insurance also requires the policyholder to assume the risk of shifts in mortality rates.

1985 – AP – Universal / Variable Life Insurance: Policy Purchase Decisions, Stephen P. D’Arcy and Keun Chang Lee – 58p

  • Another area of concern relating to solvency is investments by insurers.
  • Recently, some states have expressed concern over investment by life insurance companies in high yield /high risk obligations, referred to as “junk bonds.”

—  John Washburn , Director of Insurance for the State of Illinois and Vice President of the NAIC 

1987 – GOV – Developments In State Insurance Regulation- [PDF-511p

Market Conduct

  • The NAIC Examination (A6) Subcommittee, in 1974, recommended the establishment of a “separate and distinct” program of surveillance to ensure fair treatment of policyholders.
    • Thus was “market conduct” born.
  • The term “market conduct” has, however, fallen upon bad times. 

1991-2A, NAIC Proceedings

  • (p13) – Terri Vaughan (NAIC-CEO / IA)
    • The first thing I want to say, I agree with Professor Schwarcz that the level of our collaboration in market regulation is behind the level of collaboration in solvency regulation and that is something we have been working on for a number of years, to try to increase the collaboration.  

2011 0914 – GOV (Senate) – Emerging Issues in Insurance Regulation – Senator Reed (D-RI)   —   [BonkNote]  —  [PDF-51p,  VIDEO-Senate] 

  • No one could deny that State insurance commissioners have a poor record when it comes to market conduct oversight of the insurance industry, and consumers have been abused as a result.
  • We could go through many examples.  (p13)

It is hard to fix a system that has not been analyzed.  (p14)

  • There should be suitability rules in place, particularly for cash value life insurance policies to assure that sales of proper products are made.  (p14)

—   J. Robert Hunter, Director of Insurance, Consumer Federation of America  

2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  —  [BonkNote]

  • 1998 – SOA – Market Conduct: A New Actuarial Frontier, Society of Actuaries – 20p
  • 1998 – SOA – Market Conduct Issues for Product Development Actuaries, Society of Actuaries – 27p
    • Summary: Market conduct issues are perhaps one of the most serious facing the life insurance industry today. How did we get to this point? And more importantly, what actions are companies taking to address these issues?
  • A recent class action suit against Prudential Insurance Company provides further evidence of the need for enhanced market conduct regulation.
  • More than eight million claimants from all fifty states and the District of Columbia alleged fraudulent and deceptive sales practices against Prudential.234
  • The first exposure of Prudential’s illegal activities began early in 1994 when the first lawsuits were brought against it.235
  • The New Jersey insurance commissioner organized the Multi-State Task Force on April 25, 1995, to conduct an examination of Prudential’s sales practices.236
  • The Task Force issued its report in July 1996 and cited widespread evidence of fraudulent sales practices by agents, evidence of management’s knowledge of those practices, and failure to investigate or discipline violators.237
  • State regulators failed to detect ongoing, widespread fraud and failed to act until prompted by the plaintiff’s bar and the media exposure of Prudential.238

1999 – LR – Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners, by Susan Randall – 77p

  • (p8) –  Our job is to follow those complaints and address them in our marketplace and make that marketplace work for consumers at the local level.

NAIC – Joel S. Ario, Insurance Administrator, Oregon Insurance Division, Secretary Treasurer, National Association of Insurance Commissioners

2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  —  [BonkNote]  —  [PDF-123p, 

  • They have market conduct studies. They should have caught this. They go in with these market conduct and financial investigation studies and they catch nothing.
  • The same thing happened with life insurance abuses a few years ago, when Prudential and all ended up having to pay billions because of lawsuits. They don’t catch anything.  (p40)
    • [Bonk: They = States / NAIC]

—  J. Robert Hunter, Director of Insurance, Consumer Federation of America 

2004 1116 – GOV (Senate) – Oversight Hearing on Insurance Brokerage Practices, including Potential Conflicts of Interest and the Adequacy of the Current Regulatory Framework, CSPAN (Insurance Brokerage and Regulation Practices) – [PDF-166p, VIDEO-CSPAN] 

  • (p12) – Daniel Schwarcz (Associate Professor, University of Minnesota Law School:
    • So, notably, you will see that my testimony was focused on different issues than many of the other witnesses, and that is because it is true that solvency regulation is in many ways the core of insurance regulation.
    • Now, I say this to contrast it with market conduct and other forms of consumer regulation…. 
  • (p13) – Terri Vaughan (NAIC-CEO / IA)
    • The first thing I want to say, I agree with Professor Schwarcz that the level of our collaboration in market regulation is behind the level of collaboration in solvency regulation and that is something we have been working on for a number of years, to try to increase the collaboration.  

2011 0914 – GOV (Senate) – Emerging Issues in Insurance Regulation – Senator Reed (D-RI)   —   [BonkNote]  —  [PDF-51p,  VIDEO-Senate] 

  • 1995-4, NAIC Proceedings – Market Conduct Regulation Guidelines Working Group of the Market Conduct and Consumer Affairs (EX3) Subcommittee, November 13, 1995 – 6p
    • 1995-4, NAIC Proceedings – 1995 1205 – Attachment Four-A – NAIC Market Conduct Regulation Guidelines, Final Draft: Dec. 5, 1995
      • …market conduct regulation deals with the treatment of people.
  • 2008-3v1 – Consumer Protections and Innovation (D) Working Group
  • VIETNAM DELEGATION MEETS WITH NAIC EXPERTS IN KANSAS CITY
    • Tim Mullen, NAIC’s Director of Market Regulation, provided a presentation on agent professionalism: licensing, training, administrating and requirements for agents who sell universal life products and variable life products.

2008-2, NAIC Proceedings

  • Public interest in various aspects of insurance regulation has risen and fallen over its history, but one area that has remained obscured is market conduct regulation.

2001 – JIR / NAIC – An Assessment of Insurance Market Conduct Surveillance, Vol. 20, No.1, by Robert W. Klein, James W. Schacht – 44p

More complex products sold to individual consumers (e.g., universal life policies) tend to generate more market conduct problems than simple products (e.g., term life insurance).

2003 0701 – NCOIL – The Path to Reform -The Evolution of Market Conduct Surveillance Regulation –  Prepared for the Insurance Legislators Foundation by PricewaterhouseCoopers LLP and Georgia State University – 117p

 

ATTACHMENT FOUR-A – NAIC Market Conduct Regulation Guidelines – Final Draft: Dec. 5, 1995

It is apparent that consumers place strong emphasis on market conduct regulation.

  • Dissatisfaction with perceived market practices has been the driving force behind the initiatives in a number of states.
  • It was a reaction to the constriction of the insurance marketplace in 1985-1986 that caused many to criticize the effectiveness of state regulation and call for federal involvement.
  • Consumer demands continue to place emphasis on this form of regulation.

1995-4, NAIC Proceedings

  • Mr. DeAngelo (Commissioner-NJ) said he did not recall seeing incorrect or misleading training materials, so this is somewhat a theoretical question.
  • Mr. Hanson responded that he had seen misleading materials in market conduct examinations. 

1999-4, NAIC Proceedings

  • In its June 7, 1994 Consent Order #94-102, the NJDBI cited N.J.S.A. 17B:30-3 and N.J.A.C. 11:2-23.4 and subsequently fined MetLife $965,555 for MetLife’s practice of misrepresenting life insurance to be retirement or savings plans, particularly in advertisements sent to nurses and other professionals. 

1998 / 2003 – Report of the Metropolitan Life Insurance Companies located in New York, New York as of December 31, 1998. By Examiners of the State of New Jersey Department of Banking and Insurance Division of Enforcement and Consumer Protection Market Conduct Examination Unit – 44p

Problems spotted during a market conduct review can be a precursor to financial solvency concerns. 

 content.naic.org/cipr_topics/topic_market_conduct_regulation.htm
  • Legal Actions
  • Monitoring of litigation may alert regulators to issues that the regulatory system has not yet addressed.

2008-3, NAIC Proc. 

  • c. Adopt Recommendation for Market Conduct Examination Oversight (EX3) Task Force as NAIC Standing Technical Committee
    • Commissioner Weaver asked Mr. Chartrand to review the proposal.
    • This need is particularly important as the subcommittee would continue to focus on issues of policy, law and model legislation while the new task force would be concentrating on matters directly related to the examination processes.
    • Mr. Synnott replied that he concurred and that he had already been approached by members of the industry interested in serving on such an advisory committee.

1991-1A, NAIC Proceedings

  • A preliminary meeting of the Market Conduct Task Force was held at the Zone III meeting in Springfield in October.
  • At that meeting there was a general discussion of the objectives which the task force should pursue.
  • A number of possible areas for consideration in regard to market conduct examinations were mentioned, including the following:
    • 1. Examination funding standards,
    • 2. Examination skills relating to market conduct, for example, development of uniform standards to test market conduct performance,
    • 3. Revision of the NAIC Market Conduct Handbook,
    • 4. Creation of a system for surveillance of claims handling,
    • 5. Establishment of an “Annual Statement” for market conduct or some form of annual performance statement,
    • 6. Inquiry into alleged abuses of the market conduct examination process and ways to correct or prevent such abuses,
    • 7. Development of a questionnaire to survey Regulators and industry about concerns with market conduct examinations.  (p317)

1981-1, NAIC Proceedings 

  • Responding To Market Conduct Problems (Section VI)
    • Self-Audits
    • States may monitor company self-audits.
    • “Best practices” organizations or independent standard-setting organizations, such as IMSA in the life insurance industry, promote self-audits or self-evaluative activities and mandate corrective actions on the part of their members.

2005-2, NAIC Proc.

Expectations

  • Life insurance, because it is a nontangible product, is extremely susceptible to being perceived as whatever people think it to be.

 —   Larry Silkes

1983 – SOA – Universal Life Valuation and NonForfeiture: A Generalized Model,  Shane A. Chalke and Michael Davlin, Society of Actuaries – 72p

  • The most obvious is if we fail policyholder expectations, we may have policyholder suits.

—  Larry R. Robinson (Chairman of the ACLI Subcommittee on Cost Comparisons)

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

  • If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.
  • Obviously, there are two adjustment points whereby that can be accomplished.
    1. One is that you can change the outcome to match the expectations.
    2. The other is to change the expectation to match the outcome.

—  Robert E. Wilcox – Chairman of the LDWG – Life Disclosure Working Group (NAIC)

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

  • (p70) – Mrs. COLLINS. Just a couple of quick questions. Mr. Weiss, what do you think the significance of liquidity is with respect to the solvency of life insurance companies?
  • Mr. Weiss. Liquidity has always been an important factor behind the scenes and now it’s becoming a very important factor right here and now.
  • Mrs. COLLINS. Well, I am concerned because of the runs that we seem to be having both in other places and particularly in Chicago.
  • Mr. WEISS. The companies should have on hand sufficient liquidity to cover the potential demands that policyholders may make.
    • Either that or you need to disclose ahead of time to the consumer that his investment may not be liquid.
    • If you have no surprise, you will not have any panics.

1991 0717 and 0724 – GOV (House) – Life Insurance Solvency Issues – Cardiss Collins (D-IL)  —  [BonkNote]

  • IMPORTANT POLICY OWNER NOTICE: During the past year, previously illustrated values for your policy in the area of [describe which values have diminished] have diminished and may have an impact on your expectations.
    • You should consider more detailed information about your policy to understand how it has performed and may perform in the future.

1995-1, NAIC Proc. 

  • What I do not like is “high likelihood of meeting policyholders’ expectations.”
    • I think when we are talking about that, we are really talking about moving to guarantees and with all the problems attendant thereon.
    • The 44% of the values and benefits paid by Prudential in 1993 were nonguaranteed elements.
    • That is an important aspect of our sales, if we are trying to meet expectations, then I think we have a major problem.
    • If we are selling on the basis that this is going to fulfill your expectations without the disclaimers that are necessary, then we have some major problems.

—  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

  • (p588) – Len Stillman (Utah) asked why consumers who purchase investment type insurance products should be afforded protection that other investors are not offered.
  • Commissioner Bartlett (Maryland) responded that there is a perception that products offered by life insurers are more secure than other investments.

1995-1, NAIC Proceedings – Guaranty Fund Issues Working Group B of the Insolvency (EX5) Subcommittee – September 11, 1995

  • The agent said that Universal Life policy premiums would stay the same, but I came to realize that this is not true of our policies.
  • …what bothers me is that I am afraid that this same misleading information may be the basis of my children’s and grandchildren’s … planning…

—  Statement of Gloria Darleen Newberry

1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • Mrs. Vogt’s testimony reveals that the Vogts’ actual grievance with the policy performance arose from their agent’s alleged oral representation in 1999 that if they paid a $150 premium each month, their $100,000 policy would remain in force and would never lapse. (Ex. A at 17:17-20:12.)

2016 – LC – Vogt v. State Farm  —  [BonkNote]

 

  • One problem area in a lot of policies has been interest rates.
    • A slow cumulative, very large decline in interest rates has affected everything.
  • Why are we getting so many complaints?
    • Did the policyholder expect rates to stay the same forever?
    • Did the agent or the company mislead?
    • Did the policyholder think we were promising?
      • He shouldn’t have, I hope he didn’t.

— Bruce E. Booker (ACLI)

  • Vice President and actuary with Life of Virginia in charge of product development.
  • Member of the American Council of Life Insurance (ACLI) Task Force on Cost Disclosure 
  • Member of the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations

1993 – SOA – Sales Illustrations: We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries – 28p

Blumenthal v New York Life – Blumenthal Deposition – As Long as You Pay Premium

  • LSW also disputes that any alleged misstatements or omissions caused any injury to Plaintiffs or members of the class.
    • Among other evidence, LSW will introduce evidence of surveys conducted on consumers demonstrating that the aspects of illustrations Plaintiffs challenge have no impact on consumer purchasing behavior.
    • Further, the evidence will show that Plaintiffs’ expert, Dr. Jason Abrevaya, lacks any credible basis to opine on the purported values of Plaintiffs’ and class members’ policies, or restitution, including but not limited to because his calculations are (contrary to his representations) based on a Simulation that is deeply flawed and inaccurate.

Case 2:10-cv-09198-JVS-JDE Document 1062 Filed 12/21/18 Page 9 of 16 Page ID #:46738

CASE NO.: CV 10-9198 JVS (RNBx) – Formerly Case No.: 3:10-cv-04852 JSW – From Northern District of California – FINAL PRETRIAL CONFERENCE ORDER

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

3. Plaintiffs failed to prove consumer expectations

  • That failure properly doomed Plaintiffs’ claim. See, e.g., Clemens, 534 F.3d at 1026 (proof of UCL fraud claim requires proof of consumer expectations by class-wide evidence: “a few isolated examples of actual deception,” “personal experience,” “personal assumptions,” and personal “expectations” of named plaintiffs are insufficient).
  • Plaintiffs can hardly complain about the court commenting on the absence of survey evidence– Plaintiffs’ own expert testified that, without a survey, he could not opine about consumer expectations. ER791 59:18-21.

2016 0208 – Walker et al v. Life Insurance Company of the Southwest – Case: 15-55809, 02/08/2016, Appellees Answering Brief, ID: 9858577, DktEntry: 42, Page 42 of 126 – 126p

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

 

Cost Comparison

  • Until the buyer understands how the product works, attempts to compare price are essentially meaningless.

1972 – SOA – Life Insurance and the Buyer by Anna Rappaport, Society of Actuaries – 2p-Article

  • (p117-120) – Exhibit Il  which shows that, in the last fifty years, no less than 21 different attempts have been made to solve this problem. 
  • Furthermore, enacting a federal statute on life insurance cost disclosure would only address itself to part of the problem.

—  Statement of Stanley C. DuRose, Jr. –  NAIC / Wisconsin Commissioner of Insurance – Wisconsin / NAIC – (p107-131)

1973-2, NAIC Proceedings

  • 1976 – SOA – Cost Comparisons and Policy Language, Society of Actuaries – 16p
  • 1980 – SOA – An Extension of the NAIC System for Life Insurance Cost Comparisons, by Charles Trowbridge, Society of Actuaries – 42p
  • traditional method of policy cost comparison
  • In addition, a special LIAA-ALC-ILI Committee on Life Insurance Costs was formed to study life insurance cost comparison methods.

—  Robert G. Braund

1969 – SOA – Life Net Cost Comparisons, Society of Actuaries – 34p

  • The most obvious, though not necessarily accurate, basis of comparison of policies of the same initial or minimum face value is the premium.  (p41)

1976 0909 – Letter – ACLI to NAIC – RE: Proposed Changes to the NAIC Model Variable Life Insurance Regulation, 1976-1 – NAIC Proceedings – p623-

  • For cost comparison purposes, the natural unit price for insurance is dollars of Premium per thousand dollars of death benefit per year-adjusted as appropriate and cash surrender values.  (p131)

—  1980 0130 – Letter – ACLI to GOV (Senator Howard Cannon (D-NV), Chairman – American Council of Life Insurance, on The FTC Staff’s Responses to Criticisms of the Report on Life Insurance Cost Disclosure – (p130-136)

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote]  —  [PDF-592p] 

  • Why can’t I compare cash value products and have some sense of what is going on in the marketplace?
    • Because the notion-I mean, it really is a problem, and it is a problem that is underaddressed because everyone is so focused on solvency that they forget all these other important regulatory issues.

—  Daniel Schwarcz, Associate Professor, University of Minnesota Law School 

2011 0914 – GOV (Senate-Banking/SII) – Emerging Issues in Insurance Regulation, Jack Reed (D-RI)  —  [BonkNote]

  • In that regard, I will share with you the results of a recently published study of the ACLI and LIMRA, a study that commenced in 1979.
    • It was called “The Consumer Experience in the Marketplace Study”, and it surveyed the opinions of insurance buyers and nonbuyers with particular emphasis on cost disclosure.
  • Now where does this 40% go for the comparison information?
    • Four in ten asked the selling agent, another four in ten asked another agent, and the balance asked friends and relatives.
  • What methods were used to compare costs?
    • Almost six in ten compared premiums, four in ten compared death benefits after ten or twenty years, and about three in ten examined what they would have paid for the policies If they were to drop them or cash them out in about ten or twenty years.
  • <WishList – “The Consumer Experience in the Marketplace Study”>

—  Harold G. Ingraham

1981 – SOA – The Life Insurance Business–The View of Consumerists, Daniel F. Case – Moderator, Society of Actuaries (rsa81v7n38) – 18p

  • Obviously the criterion for setting up the maximum and minimum parameters can, be generalized, only if one can successfully figure out what the “true cost” of a life insurance policy is or should be.
  • If there is one clear conclusion that can be drawn from the recent discussions within the NAIC, the industry and the insurance press about the subject of life insurance cost comparison, it is that nobody has yet been able to figure out a way to place a “true” value of a life insurance policy to a given individual.
  • Some such objective standard for calculation of the cost will have to be decided upon before trying to generalize the maximum and minimum parameters for the life insurance premiums.

1973-4, NAIC Proc.