sb-policy-performance-variability-Non-guaranteed Elements - Universal Life

  • Universal Life Descriptions
  • Policy Performance 
  • Variability / Volatility
  • Nonguaranteed Elements (NGE's) / Nonguaranteed Policy Elements
  • Illustrations
  • Disclosure
  • Life Insurance Buyer's Guide
  • Sales / Buying Process
  • Market Conduct
  • Premium
  • Lapse
  • Academics
  • ACLI
  • Actuarial
  • Government
  • Law
  • NAIC

Mr. Wicka said the paper <Assurity White Paper> advocates for:

1) additional information to be provided to consumers regarding how the timing of their payments impacts the product; and

2) follow-up information to be provided to consumers at the time their payments go off-track so that consumers are aware of the impact to their policies.

Life Insurance Illustrations Issues Working Group - NAIC

1970s

1970

1971

1972

1973

1974

3) A task force of the Unfair Trade Practices (B4) Subcommittee is considering uniform complaint procedures for state insurance departments.

Under a pilot project, several departments have reported complaints by company, type, line, Reason, disposition, etc. on a uniform format to the Central Office. 

This information will be fed into a computer and reports generated for the departments  so as to identify and document problem companies, evaluate complaint handling procedures, identify unfair trade practice problems, etc.

1974-1, NAIC Proc,

 

1975

When it <Life Insurance Company> offers a plan of insurance for a specified premium it does so on the basis of an expected level of mortality, interest, withdrawal, expense and taxation in the future.

It also recognizes that the future experience levels will vary from those expected at issue through statistical variability or through long term or cyclical trends and sets its premiums to make allowances for this variability.

As the experience under the plan unfolds the company can release into earnings the differences between the provisions in the premiums for variability and actual variations experienced to date.

The instrument for accomplishing this is the reserve and, specifically, the release from risk reserve system is based on this concept.

1975 Report of the Historian - Special Report, Society of Actuaries

1976

1977

There is bound to be a controversial element in anything that enlightens the public to these differences and gives them a more intelligent basis for choice than they have at the present time.

-- Ernest J. Moorhead

1977 - DEBATE, "RESOLVED. THE LIFE INSURANCE BUSINESS, AS TRANSACTED TODAY, IS IN ITS TERMINAL STAGES, Society of Actuaries

Basing an industry of this size on public gullibility is a completely unsound premise.

-- JAMES C. H. ANDERSON

1977 - DEBATE, "RESOLVED. THE LIFE INSURANCE BUSINESS, AS TRANSACTED TODAY, IS IN ITS TERMINAL STAGES, Society of Actuaries

1978

  • The cash flows of a policy are defined by the Society for this purpose as "the actual transfer of funds between the policyholder and the insurance company in either direction, and includes premiums, dividends, cash values and death benefits."
    Actuaries Report, supra n. 33, at 6.
  • So what I am saying is that the Belth calculations cannot get out

    of a policy anything that isn't there already. The premiums and

    the dividends and the amounts of insurance and the cash value8

    are all there is to a policy. You can fool around with them any way

    you like but mostly you can get at all the facts just by looking at

    basic things.

    -- Julius Vogel (Prudential)

1978 -  GOV - Life Insurance Marketing and Cost Disclosure - Moss

1979

"During the course of....we ascertained that there were very few people within the Federal Government with an understanding of the insurance industry.  

A staff memo...stated: "It appears that for many years the workings of the life insurance business have been misunderstood by those at the [Internal Revenue Service and Justice Department] associated with the question."  -- Chairman LaFalce

1979 - GOV, Small business problems with insurance

"The contract <Universal Life> is a lot like the Adjustable Life concepts of The Bankers and Minnesota Mutual, with the significant, additional flexibility that a plan change is not required each time there is a change in premium payments."

-- SPENCER KOPPEL

1979 -  FUTURE TRENDS AND CURRENT DEVELOPMENTS IN INDIVIDUAL LIFE PRODUCTS,  Society of Actuaries

<Bonk: re: Universal Life>

  • "If that is the case, how does an agent program somebody?
  • How does he tell a person what he needs to pay to keep his premiums level or to have paid-up insurance at age 65?" 

--  ALLAN W. SIBIGTROTH

1979 - FUTURE TRENDS AND CURRENT DEVELOPMENTS IN  INDIVIDUAL LIFE PRODUCTS, Society of Actuaries - 24p

"For cost comparison purposes, the natural unit price for insurance is dollars of Premium per thousand dollars of death benefit per year—adjusted as appropriate and cash surrender values."

-- <ACLI> AMERICAN COUNCIL OF LIFE INSURANCE, ON THE FTC STAFF'S RESPONSES TO CRITICISMS OF THE REPORT ON LIFE INSURANCE COST DISCLOSURE

1979 - GOV -  FTC STUDY OF LIFE INSURANCE COST DISCLOSURE - HEARINGS BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION  -  UNITED STATES SENATE - Cannon - 592p

 

1980s

1980

... which falls into this category is a derivative of the Universal Life Policy first described by James C. H. Anderson...

1980-1 NAIC Proc.

1981

"Universal Life type products are, I suppose, permanent. It is a semantic question whether they are permanent life or not, but clearly they are not the traditional cash value products as we have known them..."

--  Stanley B. Tulin

1981 - THE FUTURE OF PERMANENT LIFE INSURANCE, Society of Actuaries

While I agree with Angele <Khachadour> when she says that the insurance industry has failed to communicate, I also agree with the insurance industry's response that these absurd and crazy-quilted policies have been caused in part by the Judiciary.

--  FREDERICK W. KILBOURNE

1981 -THE LIFE INSURANCE BUSINESS---THE VIEW OF CONSUMERISTS, Society of Actuaries

Traditional plans are fairly simple in their structure.
One can look at their premiums, their cash values and their dividends, if there happen to be any

Universal life presents something of a paradox. 

  • The complications begin with a very simple question: What's the premium for Universal Life? It could be almost anything.
  • Then what's the cash value? That depends on the premium.
  • It is the relationship between the premium and cash value that determines the product characteristics of Universal Life.

Let's review the basic mechanics of Universal Life.

  • The first thing that has to occur is a premium payment. 
  • A premium may be paid at any time and in any amount desired. 
  • Whenever a premium is paid, loads are deducted from that premium.
  • The balance is added to a fund. 
  • On a monthly basis, cost of  insurance charges are deducted from the fund. 
  • Expense charges may be deducted from the fund, especially in the early policy years, and interest is added to the fund on a monthly basis.
  • The cash value changes each month based on the net impact of the income and deduction transactions.
  • The policy does not lapse if a premium is not paid; rather, it lapses if the fund balance becomes too small to pay the next month's cost of insurance. 

--  BEN H. MITCHELL

1981 - Universal Life, Society of Actuaries

Dale R. Gustafson ...nominees for the hard questions are:

  • Are short-term new money investments appropriate for a product designed to meet life-long insurance needs?
  • Is it appropriate for buyers, or potential replacers to compare “new money” with “portfolio” sales illustrations without explaining the profound differences between them?
  •  How will the great continuing planning and service needs of Universal Life policyowners be provided for?
  •    Who will satisfy these needs and how will they be compensated?
  • Does anyone believe that a policyowner can figure it out all by himself, or that an 800 number in the home office will suffice?

1981 - MORE ON UNIVERSAL LIFE, The Actuary, Society of Actuaries

Richard F. Fisher sums up his viewpoint thus :

  • Universal Life is marketed as a tax-free money market fund, or other short-term investment vehicle, with term insurance available to be purchased from the fund.
  •  Current high short-term yields are illustrated for very long periods of years.
  • Continuance of the term piece has all the problems of continuance of term insurance purchased in any other way. 

1981 - MORE ON UNIVERSAL LIFE, The Actuary, Society of Actuaries

1982

"They <Universal Life Policy> merely afford purchasers greater flexibility in designing their contracts so as to meet their individual needs."

1982-1 - NAIC Proceedings, STATEMENT OF THE AMERICAN COUNCIL OF LIFE INSURANCE <ACLI> BEFORE THE NASAA NAIC JOINT REGULATORY INSURANCE - 10p 

The American Council of Life Insurance (ACLI) presented a paper on cost disclosure for universal life products..,..

  • Further, the policy summary should include a statement on the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in summary. 
  • Basically, it summarized that universal life should be treated as a life insurance plan with a nonguaranteed cost element for cost disclosure purposes.

1982-1, NAIC Proc. 

New York reports that they have determined that Section 216 and 208, (a) and (b), and perhaps other sections of their law, prohibit the issuance of universal life type products. Their law is currently being amended to permit such policies.

1982-2, NAIC Proceedings

Its <Universal Life> fundamental "mechanics" are indistinguishable from those underlying traditional life insurance products.

--Samuel H. Turner, President - The Life Insurance Company of Virginia

1982 - Journal of Insurance Medicine - 1p

 

.... I agree that failure to disclose not only misrepresents

but also sows the seeds of destruction. 

--  ALLEN D. BOOTH, FSA, is a consultant in the Milwaukee office of Towers, Perrin, Forster and Crosby. 

1982 - UNIVERSAL LIFE UPDATE, (rsa82v8n34) - Society of Actuaries - 26p

1982 Proc. II 359-360 - Universal Life Model Regulation - Citations

  • The Universal Life Insurance (A) Task Force - The regulation would address appropriate issues of regulatory concerns, including the following:
    • 4. The manner in which prospective purchasers of such plans are fairly and accurately appraised of the nature of such plans....

1983

Chalke and Davlin point out that a policy that provides whole life benefits assuming 10 percent interest is not a whole life plan if the guaranteed cash value is only 4 percent. Such a plan is term insurance only for a period of years. 

--  THOMAS G. KABELE

1983 - UNIVERSAL LIFE VALUATION AND NONFORFEITURE: A GENERALIZED MODEL, by SHANE A. CHALKE AND MICHAEL F. DAVLIN,

Life insurance, because it is a nontangible product, is extremely susceptible to being perceived as whatever people think it to be.

--  LARRY SILKES

1983 - UNIVERSAL LIFE VALUATION AND NONFORFEITURE: A GENERALIZED MODEL, by SHANE A. CHALKE AND MICHAEL F. DAVLIN

Other policies may have special features which allow flexibility as to premiums and coverage. Some let you choose the death benefit you want and the premium amount you can pay. The kind of insurance and coverage period are determined by these choices.

One kind of flexible premium policy, often called Universal Life, lets you vary your premium payments every year, and even skip a payment if you wish. The premiums you pay less expense charges) go into a policy account that earns interest, and charges for the insurance are deducted from the account. Here, insurance continues as long as there is enough money in the account to pay the insurance charges.

1983-I. NAIC Proc - STATEMENT ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURANCE TO THE NAIC (A) COMMITTEE'S
LIFE COST DISCLOSURE TASK FORCE.  November 29, 1982

<Bonk:  Also Found in NAIC Life Insurance Buyer's Guide editions until the 1996 Proc. 3rd Quarter 9, 40, 907, 918, 931-936 (amended Buyer’s Guide).

1984

"The "unbundling" of services and other product differences  between Universal Life and Ordinary Life cause current literature to be inapplicable, as well as insufficient, for Universal Life." 

1984, STATEMENT 1984-32, Academy Journal, American Academy of Actuaries (page 217)

1985

1986

"In addition to our education system, the body of actuarial knowledge itself needs the nutrition that the academic world can supply.

Academics look at problems differently than those of us in the practical world, and that difference in perspective can supplement, in a healthy way, the growth and evolution of the basic subject.

1986 - ADDRESS OF THE PRESIDENT, RICHARD S. ROBERTSON, Society of Actuaries

1987

Universal Life is not well understood and part of the mystery about it may well be due to a failure in my communication......

   .......Universal Life was developed in 1962 as a generic plan, which means that it subsumes all other life insurance products.

1987 - THE SEARCH FOR NEW FORMS OF LIFE - G. R. Dinney

1988

Dear Editor:

Life Insurance Sales Illustrations - A Call to Action

  • We have reached the stage where a life insurance sales illustration is hardly worth the paper it is printed on.
  • Yet thousands of agents are confidently presenting these illustrations to frequently unsuspecting clients.
  • I have yet to discuss this issue with anyone in the industry - home office or field - who doesn’t agree that the current situation is a mess.
  • But everyone also agrees that no single company can try to institute change by, withdrawing from the illustration game.
  • Sooner or later, surely, the whole house of cards will come
    tumbling down.

    -- Daphne Bartlett

    Article from: The Actuary June 1988 – Volume 22, No. 6

"Note that the data is not from Ralph Nader, but from LIMRA and the NALU."

-- RANDALL P. MIRE

1988 - THE FUTURE OF WHOLE LIFE INSURANCE--A DEBATE, Society of Actuaries

Mr. Montgomery <Regulator/Actuary - California> commented on the flexible premium universal life policy and the fact that it is not really a whole life policy, but a term policy until the premium is actually paid.

1988-2 NAIC Proc. 

With this product <Universal Life>, the mechanic is "unbundled" and open.

But events that are now observable may be misinterpreted.  

--Douglas Doll <Actuary>

1988-2, NAIC Proceedings

..... buyer purchased a policy and did not know what the coverages, benefits and limitations were. 

1988 Proc. II 566.

NAIC - Universal Life Model Regulation, Proceeding Citations, Section 8.  Disclosure Requirements

"The most obvious is if we fail policyholder expectations, we may have policyholder suits <lawsuits>."  -- LARRY R. ROBINSON (Chairman of the ACLI Subcommittee on Cost Comparisons)

1988 - ACTUARIAL OPINION ON NON-GUARANTEED ELEMENTS, Society of Actuaries

-Commissioner Hager of the Universal & Other Plans (A) Task Force stated that there appeared to be disclosure problems with universal life plans and that the identification of these items should be placed on the Actuarial Task Force agenda .
-Some of the items identified which should be disclosed:
(2) adequate disclosure of the fact that a premium quoted will not support the contract for the whole life if the policy is a universal life policy;

1988 Proc. II 566. - UNIVERSAL LIFE INSURANCE MODEL REGULATION
Proceeding Citations

1989

Universal Life

Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a "minimum" and a "maximum' plan....

The adoption in 1983 of the Model Regulation for Universal Life provided recognition that these policies could be configured as whole life policies.

1989-1 (p662), NAIC Proceedings

  • The foundations of actuarial science are not so esoteric or so abstruse that the average well-informed business person has great difficulty in understanding them.
  • There are, however, points at which the actuarial view and that of the general public can come into conflict.
  • Actuaries will do well to recognize where these potential trouble spots are, and to do what they can to resolve misunderstandings.

1989 - FUNDAMENTAL CONCEPTS OF ACTUARIAL SCIENCE - CHARLES L. TROWBRIDGE, p78

  • It is of great importance at the present moment that sound principles on the subject of insurance should be widely and rapidly disseminated.
  • Whether they act by producing conviction, or opposition, a step is equally gained : nothing but indifference can prevent the public from becoming well acquainted with all that is essential for it to know on a subject, of which, though some of the details may be complicated, the first principles are singularly plain.

    1838 - An Essay on Probabilities, and Their Application to Life Contingencies and Insurance Offices, Augustus De Morgan

1990s

1990

  • A great deal of the confusion seems to stem from a lack of understanding of how cash value insurance products work....
  • Also, because most people presume that if you pay your premium continuously, your policy will remain in effect, quite a few people had a hard time understanding how or why the policy would terminate in policy year 31.
    • This was simply foreign to their way of thinking.
  • One person was so confused that he said that the maturity age and endowment benefit were moot points, since the policy was going to end at year 31 anyway."

1990-1A NAIC Proceedings - NAIC LIMRA - Universal Life Disclosure Form Test Market Results - 10p

It's very possible to have a 25-year term with zero cash value, using a UL <Universal Life> product.

-- Lawrence Silkes

1990 - LIFE PRODUCT DEVELOPMENT UPDATE, Society of Actuaries, 20p


Video: Exam MLC Problem 297 "Learning Objective "Universal Life." Question: Calculate the Level Annual Premium that results in an account value of 0 at the end of the 20th year." - UW- Madison / SOA -

<Bonk: Goal: use a Universal Life policy to design a 20-year term policy.>  

 

1991

  • Mr. Keller :  So if somebody could think of a way to get to the consumer without causing real problems among recent buyers, who are our most fragile customers, we would like to hear it.
  • MS. FAUCETT: In line with John's comments, we were told by one group that actually runs focus groups that if you got a group of recent purchasers of insurance in a room, you might get responses of what they think they did or what they think they should have done, as opposed to what they actually did.
  •  

1991 - Illustrations, Society of Actuaries

MS. FAUCETT: In line with John's comments, we were told by one group that actually runs focus groups that if you got a group of recent purchasers of insurance in a room, you might get responses of what they think they did or what they think they should have done, as opposed to what they actually did.

 

1991 - ILLUSTRATIONS, Society of Actuaries

We are seeing a real crisis in confidence:
   - That, in my mind, is probably the worst thing that could happen.
   - There is not a company in the country that can stand runs that Commissioner Weaver was talking about, where people ask for $1 billion in policy loans and surrenders in a 2-week period.  <page 13>

---  William McCartney, William, Director of Insurance, State of Nebraska and Vice President, National Association of Insurance Commissioners

1991 - GOV - REGULATION OF INSURANCE COMPANIES AND THE ROLE OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS - 286p

The concern that I have, which may soon give much of the industry a very black eye,.....We may have created an illusion that will crash down on many people that they had whole life coverage, and now they find themselves with what is truly annual renewable term to
insolvency. 

--  BRUCE E. NICKERSON

1991 - Illustrations, Society of Actuaries

  • The educational task is huge, and it's not just with the customers; it's with our agents also.
  • I would say to all of you that if you think that you don't have any customers or any agents who fail to understand what a nonguaranteed illustration really means, you're kidding yourself." 

-- Walter MILLER <Prudential>

1991 - Illustrations, Society of Actuaries

1992

arry 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

1992LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 16p

A life insurance policy illustration is a mathematical calculation of benefits and values over time under specific, simplified, and generally static assumptions. (p141)

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

C. Universal Life
From the beginning, a necessity for successful marketing of Universal Life has been the ability of the seller to illustrate the performance of a policy tailored (within policy limits) to the needs and resources of the prospective purchaser.

The agent and prospect have the ability to choose almost any pattern of benefits and premiums. No longer is the sale limited to one of several fixed plans of insurance from a ratebook. Each one is different.

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

Many insurance companies even have a way to get a consumer's money without the consumer ever knowing about it.

Most policies have a clause that allows the company, without telling the policyholder, to dip into the savings component of their life insurance policy.
This can happen, for instance, when a consumer stops paying on a policy because he or she believes that the policy is paid up.

Then, without even telling the  policyholder, the company can raid the savings to pay itself more premium.  --Senator Metzenbaum (page 3)

1992 - GOV - Consumer Disclosure of Insurance - Page 3

1993

The agent said that Universal Life policy premiums would stay the same, but I came to realize that this is not true of our policies.

...what bothers me is that I am afraid that this same misleading information may be the basis of my children's and grandchildren's ... planning...

-- STATEMENT OF GLORIA DARLEEN NEWBERRY <Policyholder>


  • Why is this flimflammery allowed to continue?
  • Where are the laws to prevent companies from misleading people?

    -- Senator Metzenbaum

1993 -  GOV - When Will Policyholders Be Given The Truth About Life Insurance? 

1993 - Government Hearing - When Will Policyholders Be Given The Truth About Life Insurance - 354p

  • Actuaries can do lots of things.
    • We can provide the field with a clear description of the policy and how it works.
  • One problem area in a lot of policies has been interest rates.

    • A slow cumulative, very large decline in interest rates has affected everything.

      • Why are we getting so many complaints?

      • Did the policyholder expect rates to stay the same forever?
      • Did the agent or the company mislead?
      • Did the policyholder think we were promising?
      • He shouldn't have, I hope he didn't."  

-- BRUCE E. BOOKER (a member of the American Council of Life Insurance (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations

1993 - SALES ILLUSTRATIONS - WE CAN'T LIVE WITH THEM, BUT WE CAN'T LIVE WITHOUT THEM!, Society of Actuaries

"I sincerely believe we have a flawed instrument in today's sales illustrations.

...we did not communicate the impact of change as well as we should have.

 

Our biggest mistake would be to delay.

I don't believe the consumer will tolerate or forgive us, let alone the regulators, if we do nothing."

--  Robert Nelson, chairperson of the National Association
of Life Underwriters (NALU <NAIFA>) Task Force on Illustrations

1993 - SALES ILLUSTRATIONS - WE CAN'T LIVE WITH THEM, BUT WE CAN'T LIVE WITHOUT THEM!, Society of Actuaries

1994

"He <Richard Minck, ACLI> said the most striking change in life insurance in past years was in the non-guaranteed elements."
 
1994-1, NAIC Proceedings

MS. LINDA S, STRECK: I think the response from the NAIC to the illustration issue is somewhat of a hard hammer for all of us. In a session at this meeting,

Dick <Richard> Weber, who is now with Merrill Lynch, made the comment that, when we made illustrations available to the agents, that was when we, as actuaries, lost control of the product development function.

1994, THE DRIVING FORCES BEHIND PARTICIPATING/UNIVERSAL LIFE
(UL)/NONGUARANTEED ELEMENT PRODUCT DEVELOPMENT, Society of Actuaries

 

Mr. Wright <Chairman> said the Society of Actuaries report referred to the fact that companies said they had no control over what agents did.

1994-4, NAIC Proceedings

13. The Cover Page for any illustration should contain the annual premium necessary to maintain the policy to maturity based solely upon the guarantees in the policy. This will assist the policyowner in understanding the differences between guaranteed and non-guaranteed policy features

-- NALU (NAIFA) Letter

1994-1, NAIC Proceedings 

 As the cases of Metropolitan Life and Prudential suggest, no amount of oversight or self-policing will protect consumers from unethical or illegal company and agent practices. The structure of the market needs to change.

--Consumers Union

1994-1 NAIC Proc

  •  John Montgomery (Calif.) said that complicated products are not understood by the typical applicant.
  • Commissioner Wilcox said that a "typical applicant" for a sophisticated policy should be a sophisticated applicant, and he acknowledged that the wording might need to be clarified in that instance.

1994-3, NAIC Proceedings

"He said many consumers cannot distinguish between universal life and whole life. He said a narrative explanation was needed because many did not understand the numbers or the fact that a universal life policy might drain the cash value until there was no coverage left." 

--  Mr. Barkacs <Western Southern> 

1994-3 NAIC Proceedings

  • If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.
  • Obviously, there are two adjustment points whereby that can be accomplished.
    • One is that you can change the outcome to match the expectations.
    • The other is to change the expectation to match the outcome.

  • Second, it was observed that ..... there is virtually no accountability for any of the participants in the sale:
    • not for the company,
    • not for the agent,
    • and interestingly, the white paper discussed accountability on the part of the purchaser as well.

  • When I attended the first meeting, I very much wanted to repent and take a different course.
  • It was important to observe that these nonactuary regulators,  experienced, competent people, were seeing a different set of problems than we, as actuaries, were used to focusing on.

--Robert E. Wilcox - Chairman of the Life Disclosure Working Group (NAIC)

1994 - PROBLEMS AND SOLUTIONS FOR PRODUCT ILLUSTRATIONS - 28p, Society of Actuaries

1995

  • We've seen the problems that have occurred when Senator Howard Metzenbaum (D--OH) was given an illustration with a vanishing premium, and he had absolutely no idea that he had bought a policy that was not paid up in four years.
  • It caused many problems for the industry; it caused many problems because the press got involved, and the press doesn't understand the products as well as it thinks it does.

--  LINDA M. LANKOWSKI

1995 - PRACTICAL ILLUSTRATIONS AND NONFORFEITURE VALUES, Society of Actuaries - 14p

Commissioner Wilcox said he had a concern about the inherent unfairness in a contract without rational charges for mortality, expenses, etc.

He asked if it was the responsibility of this group to change that or just to require disclosure.

1995-1 (p492)

She <Daphne Bartlett - Regulator-California / Actuary>:

  • suggested grading in the interest rate over a period of time to standardized assumptions.
  • said that this would be an appropriate substitute for the sensitivity index. 
  • saw several advantages. It eliminated the portfolio versus new money problem because one could grade down, and the other might need to grade up.
  • said the numbers generated by the illustration would be more realistic...
  • said this would minimize the need for in-force illustrations.

1995-1, NAIC Proceedings

MS. LAURA M. MOCKRIDGE: I have worked for other insurance companies dealing with illustrations and this phenomena of being involved is very new. At my prior company I was in charge of looking at other companies' illustrations.

I called the company and their actuaries didn't know what was in the illustrations. It was the marketing department. This is new that the actuaries are involved.

1995 - CURRENT DEVELOPMENTS SURROUNDING REGULATIONS
AND STANDARDS OF LIFE AND ANNUITY PRODUCTS, Society of Actuaries

 

KEVIN A. MARTi: What I'm thinking about in particular is, Universal Life companies, back in the early 1980s, were illustrating interest rates that we all knew were not realistic long term."

MS. SUSAN OBERMAN SMITH: I think that one problem, even with the illustration disclosure, is that you are still not controlling what the agent actually says to the client, even when he or she sees that illustration.

1995 - PRACTICAL ILLUSTRATIONS AND NONFORFEITURE VALUES, Society of Actuaries - 14p

1996

Mr. Higgins <Regulator> said he would need to be convinced that it was appropriate to show on an illustration something that the consumer would never get.

1996-1, NAIC Proceedings

  • The whole process started in the NAIC, as it had to.
  • If radical changes in the way we illustrate policies were going to be made, they had to start at the NAIC.
  • The NAIC was only too well aware of the fact that sales illustrations were the subject of innumerable abuses and they wanted to correct those abuses.
  • Furthermore, the NAIC was being pushed by Senator Howard Metzenbaum who wanted to accuse the regulatory structure of not doing its job and then to bring regulation up to the federal level.

--Frank S. Irish - ASB (Actuarial Standards Board)

1996Professional Standards Affecting Life Actuaries -Society of Actuaries

1996-3V2, NAIC Proceedings, p931 

Report of the Cost Indices Subgroup of the Life Disclosure (A) Working Group

"The group first considered a suggestion from Chris Kite (FIPSCO) for a new type of index that would allow consumers to compare the assumptions in the illustration."

------------

"Brenda  Cude <Academic> (Cooperative Extension  Service)  opined  that  the  target  audience  does  not care about  assumptions."

 Commissioner Wilcox said that he admitted that the working group had gotten a little sloppy on its terminology, but it had been clear all along that the working group was focusing on sales.

1996-4, NAIC Proceedings

They are complaints about things that we can’t do anything about because the contract might be a Universal Life type product with Nonguaranteed Elements, and there is no regulatory framework to deal with those issues.

Those complaints just fall by the wayside because there is nothing that can be done. 

-- Mr. Gorski <Regulator> 

1996 - Nonforfeiture Law Development, Society of Actuaries - 23p

1997

"The actual-versus-expected performance for some UL <Universal Life> policies led to class-action lawsuits that have caused a substantial amount of negative attention to be focused on cash-value life insurance in the illustration of projected values."

-- Deanne Osgood

1997The Next Generation Universal Life, Society of Actuaries

1998

  • Someone had raised a question earlier about agent training.
  • What the agents know about their products, how well  they present them, and how they use them is key to IMSA.

    -- --  PAUL V. BRUCE

1998 -  Market Conduct: A New Actuarial Frontier, Society of Actuaries - 20p

As in every other business, an insurance agent's primary enterprise is to sell insurance, a vocation no adult consumer would confuse with a religious order.[12]

 

Concomitantly, a reasonable buyer of insurance (or any other product) must, at peril of caveat emptor, act as a reasonable consumer, e.g., research her needs from multiple sources and price-shop for policies.[13]

 

1998  - Weisblatt v. Minnesota Mut. Life Ins

1999

2000s

2000

2001

2002

2002-3 NAIC Proc.

Simply put, Universal Life insurance is not Whole Life and is not Term, and regulations that work for those products simply don't fit Universal Life. Any attempt to create a "level playing field" among these products is unlikely to have the desired effect due to the unique, flexible payment, flexible benefit nature of Universal Life products. 

2003

"More complex products sold to individual consumers (e.g., Universal Life policies) tend to generate more market conduct problems than simple products (e.g., term life insurance)."

 

2003  - "The Path to Reform –The Evolution of Market Conduct Surveillance Regulation," Prepared for the Insurance Legislators Foundation by PricewaterhouseCoopers LLP and Georgia State University

2004

Industry experience indicates that policyholders will increase their renewal premium payments in order to maintain their valuable insurance and minimum deposit interest rights.

In practice, policyholders are continually modifying their behavior to reflect changing circumstances.

2004 - "Renewal Premiums and Discretionary Participation Features of a Life Insurance Contract", A Joint Research Project,  ACLI/IAA

2005

2006

2007

2008

Monitoring of litigation may alert regulators to issues that the regulatory system has not yet addressed. 

2008-3, NAIC Proc

2009

  • Commissioner Tyler said:
    • that because one consumer complaint often means that other consumers are also harmed by a particular practice, he would like to know the relationship between consumer complaints and proper market regulation.
    • said market regulators should leverage consumer-complaint data to ensure that what happens to one consumer is not happening to others.
    • said the requirement in the proposal that a state hold certain items confidential should be eliminated.
  • Mr. Mealer said complaints are included in the adopted market analysis process.
  • Ms. Baker said the Market Regulation Handbook includes the use of consumer-complaint data in the market analysis process.

2009-3, NAIC Proceedings

2010

“It’s very easy for trusted companies to mislead naïve customers, and life insurance companies are trusted. 

The fact that they seem to be outside the regulatory reach is  shocking.” said Daniel Kahneman, a professor of psychology and public affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University and a Nobel Prize winner.

https://www.bloomberg.com/news/articles/2010-07-29/beneficiaries-can-cash-proceeds-bypass-life-insurer-checking-accounts

2011

...key issue ... perceived by the CLUs and ChFCs responding to the survey as causing the greatest problems for those working in the life insurance industry at the time.

#1 - Lack of knowledge or skills to competently perform one's duties.

2011 - The Ethical Environment of the Life Insurance Industry: The Impact of the Recession and Slow Recovery. by Robert W. Cooper, PhD and Garry L. Frank, PhD - JOURNAL OF FINANCIAL SERVICE PROFESSIONALS

2012

2013

2014

2015

In fact, a UL <Universal Life> policy will turn out to provide term life insurance, whole life insurance, or endowment insurance, depending on the premiums paid and other policy factors.


Key Attributes of Generic Life Insurance Policies --- Table 4-2

Duration of coverage - Universal Life - Depends on premiums paid

2015 - Life Insurance 15th Ed. - Black, Skipper, Black (Huebner Series) - page 111

2015Life Insurance, Black Jr., Skipper, Black III, (Huebner Series)

2016

2016/4/3, Life Insurance Illustrations Working Group, Proceedings, NAIC Proceedings

Mr. Schwartzer reminded the Working Group that the Life Insurance Illustration Issues (A) Working Group came out of concerns raised when the Indexed Universal Life (IUL) Illustrations (A) Subgroup under the Life Actuarial (A) Task Force was working on guidance for IUL policy Illustrations that would result in consumers being better able to understand the product performance and interest variability of IUL products.

2016/4/3 - LIIIWG CC, NAIC Proceedings

<Mr. Lovendusky - ACLI> said the ACLI work group thinks that most confusion for consumers involves complex products like universal life, and not Simple products like term life. He said consumers are mostly confused about options, guarantees and riders.

The ACLI work group was considering asking the life insurance and Annuities (A) Committee to narrow the charge to look at only products with options, guarantees and riders, but Ms. Cude said she thinks that it is important to consider how the disclosures for all products could be improved.

  • He <Richard Wicka - Chair of LIIIWG> said that a report could include a recommendation that consumer testing is needed.
  • John Feeney (Prudential Life Insurance) said that the American Council of Life Insurers (ACLI) task force formed to discuss the Life Insurance Illustration Issues (A) Working Group is chaired by Prudential Life Insurance and Northwestern Mutual Life Insurance He said the companies participating on the ACLI task force are not supportive of consumer testing at this time.

2016/5/17- NAIC LIIIWG CC - 2016-2

2017

2017/11/15, LIBGWG - NAIC, American Academy of Actuaries, Letter

Universal life also allows for flexibility in policy benefits, not just premium payments.

Mr. Reyna said the policy overview should help consumers understand how cash value accumulates and can work to their advantage over time.

Mr. Wicka acknowledged that the issue is complicated because a lot depends on how the policy is funded; however, just the knowledge that the policy has cash value could be helpful information for a consumer comparing a term policy to a whole life policy.

2017/11/16, LIIIWG CC - NAIC. , 2017-3

2017-3V1, NAIC Proceedings

Life Insurance Buyer’s Guide (A) Working Group

American Academy of Actuaries  -  "Because NGEs <Non-Guaranteed Elements> are likely to change, the ongoing performance of products with NGEs should be reviewed periodically after purchase to assess the impact of any NGE changes and consider actions that policyholders may wish to take (e.g., adjust premium payments or death benefits)."

-----------

"Brenda Cude (University of Georgia) said the issue of NGEs is interesting, but not something the average consumer would understand.  She did not think it was information that was appropriate for a short guide for first-time purchasers."

2018

Complaints and inquiries related to life insurance and annuity products were less frequent, and generally concerned consumer dissatisfaction with, or confusion regarding, universal life insurance policies.

2018 - Wisconsin Insurance Report, page 90

6. Agreed to Discuss Universal Life Policies

Kim O'Brien (Americans for Asset Protection-AAP) said there is a growing problem with universal life insurance policies.... policies purchased 10 and 20 years ago require additional premiums to stay in force,  and the premium hikes are particularly difficult for the elderly to pay.

Commissioner Ommen said he would put the issue on the agenda for a future meeting issue might be one for the Market Regulation and Consumer Affairs (D) Committee, as well. (6-8)

<Bonk:  She mentioned Leslie Scism's Article in the Wall Street Journal Universal Life Insurance, a 1980s Sensation, Has Backfired

2018/10/24 - NAIC - Life Insurance and Annuities (A) Committee- Conference Call

Wicka: How do Agents use these?  It would be good to hear from agents.

12/2018 - NAIC Life Insurance Illustrations Issues Working Group

ACLI's ability “to engage on individual policyholder issues with individual life insurance companies is highly limited,” said spokesman Jack Dolan in an email.

2018 - Industry Pressured To Find UL Policy Fix, John Hilton - insurancenewsnet.com

2019

Our purpose in commenting today is to emphasize to Working Group members and interested parties the important role that the professional agent plays in the disclosure and consumer education regime that is at the heart of the Working Group’s efforts.

2019/8/26 - NAIFA Letter, Gary Sanders -  NAIC Life Insurance Illustrations Working Group

"...completely Dynamic services and policy opportunities for their customers to purchase and to elect a variety of options."

2019/11/09- LIIIWG CC - Michael Lovendusky, ACLI

The ACLI supplied the NAIC and interested parties with access to numerous sample policy summaries and policy narratives.

However, they were never consumer-tested to determine whether they were, in fact, unreadable or incoherent to consumers.

Rather, the idea of consumer-testing, which was supported by industry and funded consumer representatives, was tabled in favor of exploring the development of a voluntary, short, consumer-oriented document which might theoretically supplant existing policy and narrative summaries.

2019/11/15 - NAIC LIIIWG - ACLI Letter

First thing that I want to say is that there have been some references to Misleading Illustrations. 

I'm certainly not aware of the Regulators have not found that Illustrations are misleading. 

That seems to be just an allegation that is left hanging in the air, which is inaccurate.  The Illustration is not misleading.

The policy is performing according to policy mechanics. 
-- Scott Harrison  

2019/11/15 - IULWG,  NAIC Proceedings - Conference Call <Bonk>

Rachel (Texas) :  We can see why it would be confusing and difficult to explain… without eroding some confidence on the consumer's part.

2019/11/15 - NAIC - IULWG Conference Call  - <Bonk>

2020s

2020

-Idea of the Informed Consumer

3 Broad Recommendations:
1) Consumer Testing -Fundamental Question: Will this form enhance the customer experience?  
2)  Enhance the NAIC Electronic Consumer's Guide -  NAIC Life Insurance Information - Example: SEC Summary Prospectus
3) Have a larger discussion about the disclosure and buying process... backed with data driven studies to understand when consumers need what information in the buying process.  Consider the information available at each point in time.

Disclamer :  If we are going to have a meaningful conversation everybody has to walk in with putting aside their presuppositions.  In other words, if the conclusion of the analysis is that a change needs to be made, then we need to embrace the change.  If the conclusion of the analysis is that a change doesn't need to be made, then we need to embrace that no change needs to be made...or whatever that embracing is...

If the 3 broad recommendations get baked into the work plan, we think that will help the process.

2020/7/24 -NAIC - LIIIWG CC - ACLI - Pat Reeder <Bonk>

The issue of Consumer Testing has come up before the group and I think it's a good point and something that we need to keep in mind. 

That's not something that our Working Group can do on it's own, but if that is the will of the Working Group we can certainly make a recommendation to the A Committee that Consumer Testing be explored. 

One of the things we've been struggling with is the Chicken and Egg problem. 

My hope is if we have some samples that there is some general consensus around then we have something to test. 

And, I guess, there's some disagreement around whether or not that's needed at all.  

As far as comments 2 and 3, I'm not sure that those are things that our Working Group can address, but I appreciate how this workstream goes into those larger issues.

-- Richard Wicka (Chair of NAIC LIIIWG)

2020/7/24 - NAIC- LIIIWG CC 

 
 
 

Universal Life

Universal life insurance is more flexible than whole life. You can change the amount of your premiums and death benefit. But any changes you make could affect how long your coverage lasts. If your premiums are lower than the cost of insurance, the difference is taken from the cash value. If the cash value reaches zero, your policy could lapse.

The company will send you a report each year showing your cash value and how long the policy might last. The estimate is based on the cash value amount, the cost of insurance, and other factors. Review it carefully. You might need to pay more in premiums to keep the policy in effect until the maturity date.

https://tdi.texas.gov/pubs/consumer/cb018.html

States

Universal Life

Universal life insurance is more flexible than whole life. You can change the amount of your premiums and death benefit. But any changes you make could affect how long your coverage lasts. If your premiums are lower than the cost of insurance, the difference is taken from the cash value. If the cash value reaches zero, your policy could lapse.

The company will send you a report each year showing your cash value and how long the policy might last. The estimate is based on the cash value amount, the cost of insurance, and other factors. Review it carefully. You might need to pay more in premiums to keep the policy in effect until the maturity date.

https://tdi.texas.gov/pubs/consumer/cb018.html