2019 0528 - IULSG - IUL Illustration Subgroup - (A) - NAIC
- 1/ - Fred - LIAC - IUL Illustrations - concerns features may not be working as intended, Bonus and Multiplier features, Crediting Rate, AG49 Limitations, Cash Values, Target premiums.. is a desire to change.... 2019 04 meeting- Menu of Options, Comments from ..., Evaluating Menu Options. Today... Menu - Disclosure Based, Beyond Disclosure (Items that could impact Illustrated or DCS at sale). Group of Experts to write disclosure items or work on big ticket items.
- Tomas - Disclosures are not an actuarial item. Experts good idea. start with items that can change the illustration. parallel track... somebody looking at Disclosure.
- Mike Y (??) -
- Fred -
- John - Focus on B's.
- Regalbuto - .... illustration are 20 pages long. What does AG49 require, "disclosure based of what the consumer needs to know and how these policies are illustrated" . what are the key points we are disclosing.
- Fred - delay working on disclosure...?
- Mike Y - B's are the focus.
- Regalbuto - pressure from LIAC. Industry implementation.
- Fred - Goes through Menu of Options - D's / B's - Level Playing Field, Cash Value, AG49 Constraints,
- 3/ - Mike (TX-Chair of LATF-??) - X's in the right spot. Model Reg 582 -
- Regalbuto - LIAC needs to rely on the expert. AG guidelines much harder to bring enforcement actions. AG's are not the way to regulate an industry.
- -Mike (TX) - ?? -- not all AGs are created equally.
- Craig (VA) - Benefits, pros and cons, disclosure balanced with simplicity, do people read illustrations now? may make illustrations less valuable.
- John (MN) -
- Scott Harrison - potential to be wide ranging. "Still not clear to us exactly what problem we are trying to solve here." Lack of focus. Parallel Track. re: Craig (VA), Simplicity... Taking on a lot. Parallels to Annuities. Opening up Annuity Disclosure? What problem or problems are we trying to solve....
- Fred: "I think the easiest way to express the concern of some parties is that their belief was that AG49 should have lead to an accumulated value at a certain duration of $100,000 and now some companies are showing $120,000. And their is a perception that those companies are getting more of the market share now. And there is also concern that it might be optimistic for consumers as far as what target premium they need to pay to achieve certain goals. So its a Market place issue as well as a consumer protection issue."
- Scott Harrison - This is what happens in an innovative environment. relook at regulations made in the past. "Innovative business practice is normal and the kind of thing that we want to encourage in the industry." Regulatory standards need to keep pace, we agree.
- Birny Birnbaum (CEJ) - The way you described the problem, you referred to them as perceptions. They are not perceptions, they are reality. When AG49 was created there was a concern that consumers were being given unreasonable, unrealistic illustrations. Crediting rates that weren't realistic or reasonable.
- Since AG we've now seen products developed specifically for Illustrations or juicing the illustration. That's not what I call innovative products, that's what I call gaming the system. And as you said we have products now that even though the crediting rate is lower than it was before, we have accumulation values that are higher and expenses that are higher. Something doesn't add up there. This is a crisis. People are being sold products that are clearly misleading, clearly creating unrealistic expectations. We have seen this again and again in this industry. Whether it's with Universal Life and Vanishing Premium. Whether it's with Long-term Care Insurance. Regulators have to got to act quickly on this. And there are some issues that could be addressed be on a prop basis AG49. I agree that we focus on those big ticket issues and try to blanche the bleeding at this point. In terms of a longer-term solution, I agree that this needs to move to a regulation, and there are certainly opportunities to improve illustrations generally, but I think that's a longer-term project than addressing the current crisis.
- And the last point that I want to make has to do with disclosures. The absolute last thing we need is another disclosure in this 20-page document that consumers are given. What might be needed is a complete overhaul of the illustration based on some expert analysis of consumer comprehension and consumer understanding. But the idea that layering on another disclosure is somehow going to help consumers is so off the mark it's hard to describe. Given that any of the critical disclosures are going to be a function of what happens on the critical features, I don't think it makes much sense working on disclosures at this point in time unless that parallel track is looking at a significant revamp of illustrations generally in a way that makes the disclosure a lot more meaningful and comprehensible than the current approach.
- Fred - change to AG49 or illustration model?
- Birny - Change to the model Regulation. Better consumer comprehension and understanding. Smaller pieces that are more meaningful and cut out info that is misleading and distracting. I don't think that you can reasonably do that in current illustration model framework. "For example, the framework is designed that consumers will be multimillionaires 20, 30 years down the road. What needs to happen is that they need to understand that they are buying insurance. And they need information about what the cost is going to be ......Benefits / Costs. Right now it's being pitched as something else. I think there's some . I'm happy to work on that on a parallel path, but not additional disclosure. That doesn't make sense at all.
- Scott Harris - We really take exception to Birny's characterization of misleading conduct. We'll have the opportunity to comment and express our views. Also I just want to point the illustrations are, in fact, accurately demonstrating how the products function. To Birny's point that the companies are doing what the model requires, so be it. The reality is the illustrations are demonstrating how the products function. We do agree that effective disclosure is important. We are interested in simplification of how products are illustrated. We want consumers to have the best information presented in a meaningful way.
- Tomasz Serbinowski - Actuary(UT) - I think that's completely disingenuous what was just said. That was the main purpose of the illustration, main purpose to show how the product works. ....{of 2% or 3%} rate. The whole issue is whether the values are realistic or not. And that's why we had that whole discussion. It's not that the companies want to show how the features and how the product works. I disagree with that comment. If that was that the main objective, then we would have no problem agreeing on illustrating the future at a much lower value.
- 5/5 - Regalbuto (NY) - smart people on this call, pull together information if AG49 is supportable, 65 year time horizon, right / wrong way to illustrate. Empirical support-?, we don't think it is.
- Fred - LIAC - concern - is AG49 working the way it's intended.
- Birny - can people add wording . re: Regalbuto -
- Regalbuto - "What I'm hearing from industry is that everything is fine and that there is no problem. So, if anything we will add an additional disclosure.
- I'm saying that that does not address the underlying issue from A [LIAC], which is is this working as intended. And I think the answer to that is clearly no.
- because it's allowing products that are indexed fixed life products able to illustrate IRR's commensurate with securities. I think the answer to that is clearly no. illustrate Indexed fixed life products commensurate with securities. That to me is the fundamental problem."
- Fred - "James, I'll just mention that from the feedback that I've received, industry is all over the map on this. Scott Harrison is representing a certain number of companies, but there are many other companies with different views."
- Regalbuto - "I appreciate that, I think it would be good if some of those other companies would speak up everyonce in a while."
- 6/6 - Craig (VA) - Enhanced Participation Rate.... seems equivalent to Enhanced Credit Multiplier.... but would be illustrated differently. Seems same, just packaged differently. Company interpretation. Can anything be shown to the group, that would be helpful.
- Fred - one company has offered to demonstrate to regulators how their illustration works.