REPORT OF NONFORFEITURE IMPROVEMENT WORK GROUP
competitive pressures, product designs, and technology have progressed in ways that were unanticipated when nonforfeiture laws were formulated.
Consumers value flexibility in the products they buy and convenience in dealing with providers of financial services. Customized and personalized solutions for all types of consumer needs are far more common today than they have been historically, and the trend is certain to continue. Consumers are also more interested in learning about the products and services they are buying, in order to make more informed choices. All of this is magnified by the importance placed on individual retirement planning by the mobility of the job market, increased longevity and demographic changes, and the transition from defined benefit pension plans to defined contribution structures.
The existence of a secondary market for life insurance contracts, although not a substitute for required nonforfeiture values, has provided additional options to consumers that did not exist even a decade ago.
New life insurance and annuity products that satisfy consumers’ changing needs and desires have emerged since the enactment of the Model Laws. For example, universal life and variable universal life have been available for several decades, and forms of these products with premium guarantees have been very popular for a decade or more. Also, level premium term insurance products, some with premium guarantees as long as 30 years, have had significant market acceptance since the 1980’s. Also, many deferred annuity products now incorporate Guaranteed Living Benefit features.
Competition from other financial services providers has increased due to deregulation in those sectors, allowing these providers to develop and successfully market non-insurance products with characteristics similar to those offered by insurers but not subject to nonforfeiture or corresponding requirements (e.g., bank CD’s).
Technological changes have made it possible to value and administer increasingly complex products. They also facilitate improved communication with consumers, a requirement for some of the flexible products encountered today.
Principle-based reserves are bringing a conceptual shift to how the risks to which life insurers are exposed are measured. A parallel shift in the methodology for determining required nonforfeiture values is consistent with this enhanced approach to risk management.
Constraints of Current Standard Nonforfeiture Laws The NAIC Model Standard Nonforfeiture Law For Life Insurance and NAIC Model Standard Nonforfeiture Law For Individual Deferred Annuities (both subsequently referenced as SNFL in this report) were developed when fixed premium policies with book value benefits were the norm and asset/liability management was only indirectly addressed within the insurance and annuity industry. The products that characterize the market today have more flexible premium payment options and requirements, often with American Academy of Actuaries
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