Illustrations - Problems

  • We've all heard a lot about the junk bond crisis.
    • Is the next crisis going to be junk illustrations?

--  Judy Faucett

1991 - SOA - Illustrations, Society of Actuaries - 20p

  • The number one perceived problem is that buyers simply do not understand the nonguaranteed nature of life insurance illustrations.
    • Also, it is impossible for the average buyer to judge the reasonableness of the assumptions underlying the numbers in the illustration. 

--  John W. Keller, Northwestern Mutual

1991 - SOA - Illustrations, Society of Actuaries - 20p

  • Certainly customers are not going to be happy if they get a dividend considerably less than the dividend that has been illustrated.
    • That is a fact of life that we have to worry about and be concerned about.

--  Richard M. Stenson

1980 - SOA - Premiums and Dividends -- Participating Insurance, Society of Actuaries - 26p

  • It is these concepts or the uses of the products and not the illustrations that are the difficulties here.

--  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

  • In my presentation, I will be talking about the views of the regulators in the U.S. on the illustration problem.
  • Some of the comments that we have heard from regulators about the illustration situation suggest feelings of, if not outright despair, growing frustration.
    • A couple of them spoke sadly of the futility of regulating an illustration when the real issues involve the agent or the company.
    • Larry Gorski of the Illinois department mentioned that in states that do not regulate advertising or promotional materials, misleading statements can be rampant in those materials even if the illustrations are made pure.

 --  Benjamin J. Bock, Transamerica Occidental

1992 - SOA - Life Insurance Sales Illustrations, Society of Actuaries - 16p

  • Tony Higgins (N.C.) said the problem with an illustration was that there were so many variables to the illustration.
  • Commissioner Robert Wilcox (Utah) pointed out that the members of the working group were significantly more knowledgeable than the target audience of the illustration.
    • He said if it was difficult for these regulators to understand the illustrations, think how difficult it would be for a potential buyer to understand them.
  • Commissioner Wilcox responded that some standards exist but that they did not provide much comfort except to another actuary.

1994-2, NAIC Proceedings

  • Report of the Life and Health Actuarial (Technical) Task Force to the Life Insurance (A) Committee Chicago, Illinois - June 23, 1993
  • 13. Non-Guaranteed Element Annual Statement Interrogatories
    • The actuarial task force is monitoring work being done by the American Academy of Actuaries group considering this area.
    • The task force decided at its June 1993 meeting this project should be combined with Project 14 "Disclosure and Sales Illustration Practices."
    • Accordingly, the actuarial task force recommends that this be deleted as a separate project in June 1993. This project is a priority 2 project.
  • 14. Disclosure and Sales Illustration Practices
    • The actuarial task force is monitoring work being done by the Society of Actuaries and the American Academy of Actuaries and the Actuarial Standards Board in this area and is also monitoring the work of various states covering this area.
    • Many problems with respect to illustrations exist at the present time.
    • The California Insurance Department has developed a proposed regulation which might be studied as the basis for a model regulation (Attachment One-H).
    • This project is a priority 1 project.
  • 10. Recommend deletion of Project 13 "Non-Guaranteed Element Annual Statement Interrogatories" from the actuarial task force's agenda because any remaining work can be done under Project 14 "Disclosure and Sales Illustration Practices."

1993-2, NAIC Proc.

  • (p2) - Judy Faucett: Also in the fall, Senator Metzenbaum sent a letter to the NAIC describing the problems that he saw with today's illustrations based on the hearings that he held in June.
    • The main problems that he saw were that buyers had no way to really understand what was and wasn't guaranteed in the illustration.

1993 - SOA - Sales Illustrations - We Can't Life With Them, But We Can't Live Without Them!, Society of Actuaries  ---  [BonkNote]  ---  28p

  • How did the industry, in the 1980s and 1990s, get into a situation where it was selling illustrations instead of value?

--  Roger R. Heath

1991 - SOA - Disclosure Systems: Can an Ideal Method be Found?, Society of Actuaries - 22p

  • Those illustrations were too aggressive I think.

-- Shane Chalke

1995 - SOA - Current Developments Surrounding Regulations and Standards of Life and Annuity Products, Society of Actuaries - 18p

  • The United Kingdom and Australia have relatively competitive life insurance markets, with many similarities to the North American market.
    • As in our market, ledger illustrations have been employed for Type B comparative cost and performance evaluation.
    • Not surprisingly, these countries have also encountered problems with sales illustrations.  (p161)

1991-1992 - SOA - Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries - 142p