Bait and Switch

  • Policies that credit higher interest rates in early years and lower rates in later years came in for criticism.
  • Some characterized such policies as "bait and switch" and thought they should be restricted by regulation or by actuarial standards of practice.  (p4)

1993 07 - SOA - ASB Mulls New Standards, The Actuarial Update, Gary Corbett - 8p

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

-- William C. Koenig

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

Sheryl Moore (Moore Market Intelligence) said she is concerned that some companies are increasing their insurance charges to subsidize their option budget.

  • She said she is also concerned that the practice of playing “bait-and-switch” with renewal rates is becoming more common among universal life products.

2014-3, NAIC Proceedings - Moore Market Intelligence Letter (9-28-14) ................ 6-345

Bill White, chief actuary, New Jersey, reported on their special project pertaining to universal life.

Their commissioner, on June 25, 1982, declared an 81-day moratorium on "Universal-Flexible Factor" type of policies. His staff was directed to

  • (1) study the matter and issue a position paper on the subject;
  • (2) conduct public hearings on March 10-11;
  • (3) terminate the moratorium April 16 with the publishing of a set of guidelines.
  • Reports and results have been mailed to each insurance department.

Some of the questions New Jersey conveyed included:

  • (1) are these policies participating or non-participating;
  • (2) the "Bait and Switch" potential;
  • (3) disclosure;
  • (4) Federal Income Tax aspects;
  • (5) non-forfeiture values;
  • (6) replacement problems.

The concern was not just with the "twisting" replacements, but was the impact of justified replacements on the solvency of replaced companies.

1982-2, NAIC Proceedings