2019 0917 - NAIC - LIIIWG - Life Insurance Illustrations Issues Working Group - Proceedings (Fall, 6-77) - Cost of Insurance

  • 2019 0917 - NAIC - LIIIWG - Life Insurance Illustrations Issues Working Group - Proceedings (Fall, 6-77) - Cost of Insurance (COI) ---  [BonkNote]
    • (A) - NAIC Proceedings 
    • (B) - [Bonk: Not in NAIC Proceedings]
  • A - NAIC Proceedings - Official
  • B - Bonk:  [Not in NAIC Proceedings]

(A) - NAIC Proceedings 

2019 0917, NAIC Life Insurance Illustrations Issues Working Group (LIIIWG) - Proceedings (Fall, 6-77)

  • Richard Wicka (WI):  This is probably more for the Universal Life Products, but how do we want to capture the concepts like Cost of Insurance and other fees in this document?

  • Ms. Winer (GA): ...said that disclosure is helpful, but only if it is meaningful.

  • g. Clarifying “Coverage Period Description
    • Mr. Yanacheak said this is intended to capture how long a policy’s term is—a term of years or for life.
    • Mr. Birnbaum said it is intended to answer the question: If I pay my premium, this policy will cover x amount of time.
    • Mr. Wicka suggested, and the Working Group agreed, to the following revised language to Section 5A(2)(e)(iii): (iii) Indicate whether it is a term or permanent policy.
      • If it is a term policy, indicate the length of the initial term.
  • Mr. Birnbaum said there is no need to get too caught up in the details; he said just include enough information that a consumer could compare one policy to another and say, for example:
    • The cost of insurance is between 1% of cash value up to 3% of cash value.
  • Mr. Wicka suggested including three elements:
    • 1) cost of insurance charge;
    • 2) net amount at risk; and
    • 3) maximum allowable charge.
  • The Working Group agreed to the following revision to Section 5A(2)(d)(vi):
    • (vi) If applicable, A narrative description  explanation of the cost of insurance fee, a narrative explanation of the net amount of risk to which the fee will apply, and other fees needed to keep the policy in force and how those fees may change over time the maximum allowable cost of insurance fee allowed under the policy.

(B) - [Bonk: Not in NAIC Proceedings] 

2019 0917 - LIIIWG - Life Insurance Illustrations Issues Working Group - NAIC - Proceedings (Fall, 6-77)  

Cost of Insurance / Costs / Premium / 

  • Birny Birnbaum (CEJ)
    •  ...can be done in a fairly transparent way …even easier than what you can do with a Surrender Charge.
    • So, for example, if there's a Cost of Insurance charge, what's the initial "Cost of Insurance Charge" and can it change and are there any limits to what the changes can be.
      • That's useful information for a consumer. 
    • If I look and see that … here's what the "Cost of Insurance" is, but this fee can go up without limit … that's useful information compared to a product where the "Cost of Insurance" can go up, but it's capped at 2 times the initial charge for example."
  • Michael Lovendusky (ACLI)
    •  So, the ACLI recommends that you steer away from Cost of Insurance elements in the Cost Information, other than to acknowledge that there is a Cost of Information.
    • Cap, basic information might be agreeable.
  • Teresa Winer
    • The Cost of Insurance Charge is a rate and that's applied to the Insurance Coverage, which is like a Net Amount At Risk, which varies depending on your Cash Value Amount and how much you've deposited. 
    • So, you've got a rate, but then it depends on your Cash Value as well.
    • It's kind of a circular thing and it gets so complicated because it's being deducted from a Cash Value account, but as your Cash Value grows it gets smaller, even though….. I know Birny was talking about rates going up … and that's important to see.....but....
    • The way that it's actually used to get the Cost of Insurance Amount is that they just have to take the rate and then multiply is by something else …and they are not going to know what that is. 
    • So, that's what I'm saying… it gets so …. It's interesting, but the value of what you are going to be charged is not going to come out of that …. It gets really complicated."
  • Birny Birnbaum (CEJ):
    • So, if the information that you provide here is the initial cost of insurance, what percent of the cash value and it can increase up to 3% of the cash Value. 
    • Then that is information that can be used to compare across companies…. 
    • So, the comments that Mr. Lovendusky made were basically contradictory.
      • On the one hand, he talked about how complicated this stuff is, but at the end he then said, well, we could give the initial and then what the cap is.
    • And that is exactly what CEJ had suggested for this particular provision ---
      • Which is: What am I starting with and what can this thing go up to.
    • That is in fact useful information to the consumer. 
    • And this will not only, not create litigation, because this is what's in the policy form, but it will prevent litigation, because it will be much more transparent to the consumer… what the possibility is that the consumer is facing.

So, I can admit that I am completely baffled why Industry, which has been sued over this issue would not try to make this much more transparent up front to avoid the problems it is now encountering.