1987-2

  • Rules Governing the Advertising of Life Insurance and
    Life Insurance Products Coupled with Annuities
  • founding meeting of the Society of Market Conduct Examiners

Executive Committee

  • NAIC Position Paper on Repeal or Modification of the McCarran- Ferguson Act (Attachment Three) - (p28)
  • Recommendation of the Special Federal Issues Task Force
    (Attachment Four) - (p32)
  • Synopsis of Action Taken by the NAIC Committees, Subcommittees and Task Forces (Attachment Eight) - (p37)
  • (148) Market Conduct Surveillance (EX3) Task Force
    • 1. Report of Subgroup on Life Insurance and Annuities
    • 2. Report of Subgroup on Life Advertising Issues

2. New Issues in Solvency Surveillance

  • The second issue for attention is a discussion of the major issues facing the solvency surveillance system including insolvencies and the impact on those insolvencies of premium-to-surplus ratios, reinsurance recoverables, adequacy of loss reserves, riskiness of certain lines of business, current market value of investment portfolio and riskiness of the investment portfolio.

REPORT OF THE MARKET CONDUCT AND CONSUMER AFFAIRS (EX3) - ADVISORY COMMITTEE - JUNE 22, 1987

  • Rules Governing the Advertising of Life Insurance and Life Insurance Products Coupled with Annuities
  • Anti-Rebate Update
    Report to Agent Licensing Study (EX3) Task Force
  • (p135) - ATTACHMENT FOUR
    COMMENTS RECEIVED FROM INDUSTRY REGARDING PROPOSED AMENDMENTS TO NAIC MODEL RULES GOVERNING THE ADVERTISING OF !JFE INSURANCE

PROPOSED AMENDMENT TO ACTUARIAL GUIDELINE XIV

  • During 1986 the NAIC Life and Health Actuarial Task Force has considered several proposed revisions to the  valuation section of the NAIC Universal Life Insurance Model Regulation.
    • No consensus has developed.
    • The task force still intends to conduct a complete review of the valuation standards for universal life Insurance.
      • Such a review may take several years.
    • In the interim, the task force urges commissioners to make maximum use of the regulatory tools now available.
    • In addition to the model regulation, Actuarial Guideline XIV is an important tool for the regulation of companies of particular concern to the regulator.
    • The task force wishes to call attention to Actuarial Guideline XIV and proposes an amendment which would clarify part of its original intent.

ATTACHMENT FOUR
COMMENTS RECEIVED FROM INDUSTRY REGARDING PROPOSED AMENDMENTS TO NAIC MODEL RULES GOVERNING THE ADVERTISING OF LIFE INSURANCE -
American Academy of Actuaries, William T. Tozer (sp) Tozier, Chairman of the Task Force on non-guaranteed elements.

  • Recommended modifications specific to definitions and sales illustrations directly related to life insurance products which contain "non-guaranteed elements;" e.g. values, premiums or benefits whose amount is not guaranteed by the term of the contract.
  • Response: The suggested changes were consistent with the intent of the proposal; and were incorporated into the draft of the rule.

1987-2, NAIC Proceedings

MARKET CONDUCT SURVEILLANCE (EX3) TASK FORCE
1. Develop guidelines for use of the Regulatory Reporting Form, and monitor use of form on a total basis.
2. Continue development and study of life insurance products coupled with annuities model regulation.
3. Continue development of amendments to NAIC Model Rules Governing the Advertising of Life Insurance.
4. Study the feasibility of the creation of a data base for use in targeting market conduct examinations.
5. Study the feasibility of a separate Market Conduct Annual Statement.
6. Study and pursue development of Market Conduct Examiner Certification Program.

A'ITACHMENT FOUR
COMMENTS RECEIVED FROM INDUSTRY REGARDING PROPOSED AMENDMENTS TO NAIC MODEL RULES GOVERNING THE ADVERTISING OF LIFE INSURANCE

REPORT OF THE MARKET CONDUCT AND CONSUMER AFFAIRS (EX3)
ADVISORY COMMITTEE
JUNE 22, 1987
Rules Governing the Advertising of Life Insurance and
Life Insurance Products Coupled with Annuities

(151) - Rules Governing the Advertising of Life Insurance

Section 11. We underst.ood the original charge to be limited to addressing the new generation of interest-sensitive life products.

 

 

For this reason the task force believes that the regulation should be accompanied by objective demonstrations of the effect of using either (i) a single mortality table such as the 1980 CSO Basic select male nonsmokers table or any other table the advisory group considers most applicable or (ii) four such basic tables for at least a traditional plan, a universal life plan and a single premium plan and at least two issue ages, 35 and 50 for example. These parameters may be varied by the advisory committee if it seems necessary.

GUARANTY FUND (EX4) TASK FORCE

  • Brian Quigley (Travelers) noted that some of the individuals who have addressed the data issue do not have a realistic approach to the problem and they are not familiar with the issues addressed by the guaranty funds.
  • He says that due to his participation on six guaranty funds, he understands the reality of the situation and knows that the companies do not have the necessary information available.
  • With respect to defined benefit plans, he stated that insurers could pay the plan but not the individual participants.
  • Additionally, he noted that margins with such plans are small and contracts will not be written if a company has to pay a per participant benefit because the activity
    would not be profitable.
  • He also noted that the task force should be aware that the trend is toward no coverage for GICs.

(p129) RULES GOVERNING THE ADVERTISING OF LIFE INSURANCE - DRAFT: 6/4/87

20. An advertisement shall not make unfair or incomplete comparisons of policies, benefits, dividends, nonguaranteed policy elements, or rates of other insurers. An advertisement shall not Weely 81' ~ 4eeePiee disparage other insurers, their insurance producers, policies, services or methods of marketing.

Section IV. Form and Content of Advertisements
1. Advertisements shall be truthful and not misleading in fact or by implication. The form and content of an advertisement of a policy shall be sufficiently complete and clear so as to avoid deception. It shall not have the capacity or tendency to mislead or deceive.

Whether an advertisement has the capacity or tendency to mislead or deceive shall be determined by the Commissioner of Insurance from the overall impression that the  advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed.

2. No advertisement shall omit material information or use words, phrases, statements, references or illustrations if such omission or such use has the capacity, tendency, or effect of misleading or deceiving purchasers or prospective purchasers as to the nature or extent of any policy benefit payable, loss covered, premium payable, or state or federal tax consequences.

  • The fact that the policy offered is made available to a prospective insured for inspection prior to consummation of the sale, or an offer is made to refund the premium if the purchaser is not satisfied, does not remedy misleading statements.

7. An advertisement for a policy containing graded or modified benefits shall prominently display any limitation of benefits.

  • If the premium is level and coverage decreases or increases with age or duration, such fact shall be prominently disclosed.
  • A life insurance policy under which the death benefit varies with the length of time the policy has been in force shall accurately describe and clearly call attention to the amount of minimum death benefit under the
    8. Premiums

13. Eli il~ends &B<i Nonguaranteed Policy Elements
(a) An advertisement shall not utilize or describe Eli 4EleeM nonguaranteed policy elements in a manner which is misleading or has the capacity or tendency to mislead.
(b) An advertisement shall not state or imply that any nonguaranteed element is guaranteed.

  • No illustration of nonguaranteed elements shall illustrate benefits greater than those currently being provided by the company unless such illustration of nonguaranteed elements has a basis that has been publicly declared by
    the company with an effective date for new issues not more than three months subsequent to the date of illustration.
    (c) An advertisement shall not state or imply that illustrated di J'iEleaEleUMel' p&Ri.eipHi.ngpeliey&Mf nonguaranteed policy elements, e11 fM1P8 eBde ,RBeMS will be or can be sufficient at any future time to assure,
    without the further payment of premiums, the receipt of benefits, such as a paid-up policy, unless the advertisement clearly and precisely explains (1) what benefits or coverage would be provided at such time and (2) under what conditions this would occur.
    (d) An advertisement shall not refer to dividends as ''tax free" or use words of similar import, unless the tax
    treatment of dividends is fully explained and the nature of the dividend as a return of premium is indicated
    clearly.
    (e) Any illustrations or statements containing or based upon nonguaranteed elements shall set forth with equal prominence comparable illustrations or statements containing or based upon the guaranteed elements.
    (f) Any advertisement or illustration shall state when and under what conditions the company intends to change any nonguaranteed elements.