Cost Disclosure

The purpose of disclosure is to let the life insurance buyer know what he's getting. 

--  RUSSELL R. JENSEN

1977 - Cost Disclosure in Individual Life Insurance, Society of Actuaries

  • One thought about the Moss Report is that requiring that costs for both term and whole life be provided when selling insurance products does not seem right in the American marketplace.
  • If the agent wants to do it voluntarily, that is one thing, but to have it mandated, seems to be against our way of marketing products.

-- William M Snell, Chairman of the Wisconsin Task Force

1979 - Cost Disclosure, Society of Actuaries - 18p

ATTACHMENT ONE - LIFE INSURANCE COST DISCLOSURE - HISTORICAL BACKGROUND

1982-2, NAIC Proceeding

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

1973-2, NAIC Proceedings 

(p107-131) - STATEMENT OF STANLEY C. DUROSE, JR. (COMMISSIONER OF INSURANCE - WISCONSIN) ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS <NAIC> BEFORE THE SUBCOMMITTEE ON ANTITRUST AND MONOPOLY LEGISLATION SENATE JUDICIARY COMMITTEE LIFE INSURANCE COST AND BENEFIT COMPARISONS - February 21, 1973

JOHN K. BOOTH: Cost comparison and disclosure for individual life insurance has been discussed and debated for well over a decade.

Why is it that there are still divergent views on a subject that has received so much extended attention?

Certainly, it is not for lack of techniques or methods for comparing costs to the consumer.

Over the years, actuaries, academicians and others have proposed, analyzed, compared, studied, discarded, and reintroduced a variety of approaches to cost comparison.

Nor is it for lack of public debate on the subject inasmuch as it has been discussed in many hearings before the National Association of Insurance Commissioners (NAIC), state insurance departments, committees of state legislatures and committees of the U.S. Congress.

If the solution to the cost comparison and disclosure issue was merely one of finding the right method or technique for providing consumers with information to help compare policy costs, it would have been resolved long ago.

What makes the issue so difficult is that it directly impacts the ability of rival life insurance marketing forces to compete for the consumers' dollar.

1981INDIVIDUAL LIFE INSURANCE COST DISCLOSURE ISSUES, Society of Actuaries

At the Sept. 9, 1993, conference call of the actuarial task force, the members agreed that the actuarial task force will provide definitions needed relating to cost disclosure.

1994-2 NAIC Proc. 

Any administrative rule requiring dissemination of cost disclosure information that is misleading due to incompleteness is beyond the scope of the insurance commissioner's authority in that it violates sub. (1) (a).

 

1981 - LC - Aetna Life Insurance Co. v. Mitchell, 101 Wis. 2d 90303 N.W.2d 639 (1981).

From <https://docs.legis.wisconsin.gov/statutes/statutes/628/III/345/4/b>

  • A review of the discussions in our Society's meetings shows that little concern has been devoted to the consumer.
  • I think that we should make cost disclosure simple and easy for consumers to understand by putting ourselves in their shoes and making them aware of the vast area of uncertainties in life insurance cost."

--   PAUL J. OVERBERG

1980 - AN EXTENSION OF THE NAIC SYSTEM FOR LIFE INSURANCE COST COMPARISONS, by CHARLES L. TROWBRIDGE, Society of Actuaries

  • On the face of it, the assignment of the Task Force to develop a better formula and format for cost comparisons looks like a simple one.
  • But, as I shall show later in this statement, it is a very complex problem -- one which has defied the best minds in the business and among the commissioners for many years.
  • And finding the best way to make the comparative cost and benefit data available to the public for informational and comparative purposes presents some tricky problems centering around the proposition that producing the required simplicity can lead to results which may be both inaccurate and misleading.
  • But, to summarize, the point I want to make at the outset is that cost disclosure has long been a tradition in the life insurance business.
  • What the discussion today is about is not whether to disclose, but how to do it better.

STATEMENT OF STANLEY C. DUROSE, JR. (COMMISSIONER OF INSURANCE -- WISCONSIN) ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS <NAIC> BEFORE THE SUBCOMMITTEE ON ANTITRUST AND MONOPOLY LEGISLATION SENATE JUDICIARY COMMITTEE, LIFE INSURANCE COST AND BENEFIT COMPARISONS, February 21, 1973

1973-2, NAIC Proceedings

However, as we have stressed previously, at the time a life insurance policy is issued, the 'true cost' of a policy cannot be determined under any circumstances by any method.

1975-2 NAIC Proceeding

"I'm now going to talk about cost disclosure, which is one of the subjects that I have been following closely at the ACLI."

"The new regulation was the result of a broad effort involving the NAIC, the ACLI, and the American Academy of Actuaries. The major purpose of the revision was to update the regulation and the accompanying Buyer's Guide to accommodate today's marketplace. In addition, the new regulation provides for additional disclosure designed to help both the consumer and the regulator. However, while the revision involved some extensive changes, the fundamental structure of the disclosure system provided by the previous regulation was retained. Let's now turn to the
principal changes that were made.

New Features. The following are the significant new features of the
revised model regulation :
I. A requirement for furnishing interest-adjusted indexes on both
guaranteed and illustrated bases. This replaces the requirement
in the previous regulation for showing the interest-adjusted
indexes on an illustrated basis accompanied by the equivalent
level annual dividend. The change reflects the great variety
of nonguaranteed factors that are now incorporated in life
insurance products.

2. A Special Plans section to accommodate the unique features of
policies such an enhanced ordinary life (under which dividends
are applied to maintain a level death benefit), universal life,
multitrack policies, and revertible term.

3. A provision for disclosure of dividend practices to both new and
existing policyholders. The company must disclose whether it is
on a portfolio basis or an investment year basis and must also tell
the policyholder if dividends are not based on accepted actuarial
principles. The Academy has defined accepted actuarial principles
for mutual companies and is now in the process of doing so for stock companies.

4. A provision for disclosure to regulators and policyholders of
unusual patterns of premiums and benefits. The regulation includes a mechanism to test for premiums and benefits which follow an unusual pattern. This is in response to some charges that have been made that companies manipulate cash values and dividends so as to come up with deceptively good-looking cost indexes at ten years and twenty years.

5. A provision enabling policyholders to request additional
information relating to future premiums, benefits, and other items
affecting policy costs.

6. Changes in disclosure requirements to accommodate (i) adjustable policy loan interest rates and (ii) procedures under which policy dividends or excess interest credits reflect the extent of loan
activity on a policy-by-policy basis ("direct recognition").

7. A new Buyer's Guide, with changes designed to take account of
recent product developments and to enhance the Guide's
readability and usefulness.

The Future.
Now let me say a few words about where we go next.
For this year, I would not expect much action by the states on the
revised model regulation. The ACLI supports the new regulation and has written to the state insurance commissioners urging that they adopt it. However, it takes time to digest any new regulation, particularly one as extensive as this. Also, 1984 has been a very busy year for both the regulators and the industry. Baldwin-United, guaranty fund laws, unisex legislation, federal income taxes, bank deregulation--these and other issues have overshadowed cost disclosure on the priority list.
But there are forces at work, some just starting to stir, that may cause some real movement on the new regulation in 1985. The increasing popularity and variety of new life insurance products are serving to make the old model regulation, particularly the old Buyer's Guide, appear more and more obsolete.

In Washington, the Federal Trade Commission (FTC) and now also the House Judiciary Committee are studying the adequacy and
quality of consumer information on life insurance.

The FTC is committed to presenting a report on the subject by January 1, 1985, and Congressional interest in the subject may very well continue for an extensive period. It is very possible that these forces, especially if accompanied by an easing of some of the other regulatory and industry concerns, will soon spark action on the new regulation in the state capitals.

-- Tony Spano (ACLI)

1984 - NAIC UPDATE, Society of Actuaries

  • It is not clear whether deliberate misrepresentations are made in the sale of these policies, or whether consumers need to be better educated about the product they are purchasing.
  • In any event, the hearing this morning will serve to educate us about these issues, and to raise public awareness so that consumers themselves will be more knowledgeable.

-- STATEMENT BY SENATOR STROM THURMOND (R-S.C. )

1992  - GOV - CONSUMER DISCLOSURE OF INSURANCE  BEFORE THE  SUBCOMMITTEE ON ANTITRUST, MONOPOLIES AND BUSINESS RIGHTS, SENATE JUDICIARY REFERENCE HEARING ON 

Any administrative rule requiring dissemination of cost disclosure information that is misleading due to incompleteness is beyond the scope of the insurance commissioner's authority in that it violates sub. (1) (a). Aetna Life Insurance Co. v. Mitchell, 101 Wis. 2d 90303 N.W.2d 639 (1981).

 

From <https://docs.legis.wisconsin.gov/statutes/statutes/628/III/345/4/b>

1980 - LIFE INSURANCE COST DISCLOSURE: A DECADE JUST COMPLETED, John P. Meyerholz, The Forum (Section of Insurance, Negligence and Compensation Law, American Bar Association), Vol. 15, No. 5 (Summer 1980), pp. 889-913