InsuranceNewsNet Magazine - March 2020

Page 12


Two-Front Illustration War Illustrations are in the crosshairs of both regulators and class-action litigators. The former group wants to rein in high IUL illustrations, while the latter is in court claiming insurers are using proprietary indices to manipulate illustrated returns. By John Hilton


llustrations are crucial to the sales process for life insurance and annuities, and they continue to attract attention from both regulators and trial attorneys. The issue is one of fairness and, perhaps, liability. Change is in the air, with the only questions being: What the change will look like and who will strike first — the courts or the regulators?

‘Toothless’ Guideline

On the life side, the source of consternation is Actuarial Guideline 49. Approved by the National Association of Insurance Commissioners (NAIC) in 2015, AG 49 was supposed to rein in indexed universal life illustrations. Almost immediately, insurers created IUL products with bonuses and multipliers that critics say rendered AG 49 toothless. The NAIC created a subgroup last year to tighten up AG 49 if possible. Talks were slow until October, when 8

InsuranceNewsNet Magazine » March 2020

the subgroup’s parent committee issued an edict that surprised many in the process. The Life Actuarial Task Force voted to add language tightening AG 49, leaving the details to the subgroup. The key wording is this: Multipliers or other enhancements should not illustrate better than non-multiplier designs. Since then, the subgroup has struggled to fulfill the mandate. On their most recent call, members seemed receptive to industry proposals that would limit maximum illustration rates to the 6% range. Illustrated rates had climbed to twice that number before regulators started

obviously it comes down to the experts who understand how these products work, and how the illustration of these Brian Bayerle products works,” said Brian Bayerle, senior actuary with the American Council of Life Insurers. The subgroup has also split on whether to apply any new IUL illustration rules to in-force policies. Birny Birnbaum, executive director of the Center for Economic Justice, has said the issue has already

“The problem with the illustrations and ‘fairness’ is in the rates an advisor can illustrate. As an example I will only show 3.5% growth on a IUL, because I would rather over deliver and under promise what the contract will do.” — Michael C. Whitman, CFP, Millennium Planning Group meeting. Industry representatives say they can keep multipliers, but use them in ways that keep illustrations reasonable. “There may be multiple other approaches that conceptually work and

been decided by NAIC precedent, which requires application to in-force policies. “The whole purpose of these changes is to stop what people feel are misleading illustrations,” Birnbaum said during