NAIC Nears IUL Illustration Compromise
February 13, 2015 by Arthur D. Postal, arthur.postal@innfeedback.com
WASHINGTON – The National Association of Insurance Commissioners (NAIC) appears to be on track to adopt new rules governing the illustrations that insurers and agents can use when selling indexed universal life insurance by July.
At a conference call last week, the NAIC’s Life Actuarial Task Force (LATF) said it plans to release an exposure draft on Feb. 17 for discussion during a 90-minute public call on Feb. 19.
The public would then have three weeks to comment. After that, the LATF will likely evaluate the comments and consider adopting the proposal at the NAIC’s spring meeting in Phoenix in late March.
Following LATF adoption, both the Life Insurance (A) Committee and full NAIC would have to adopt the proposal before it becomes effective.
If the LATF and the full NAIC adheres to such a schedule, the interim IUL illustration guideline will then be able to go into effect July 1, as planned by the LATF at its fall meeting in Washington last November.
Richard M. Weber, president of the Ethical Edge, a fee-only insurance fiduciary advisory firm, said he is hopeful that if that schedule holds, the NAIC and interested parties can then turn to dealing with the longer term question of how best to illustrate all current assumption products, including, but not limited to indexed products. His firm is based in Pleasant Hill, Calif.
Weber said that what is needed is a better way to provide the best initial and ongoing information a consumer needs to create realistic expectations and optimal management of illustrated products.
Besides heading Ethical Edge, Weber is also co-chairman of the Society of Financial Service Professionals (FSP) Illustrations Questionnaire Committee. He is also a recent past president of the FSP — a national organization of more than 10,000 insurance professionals, financial planners, attorneys accountants and other client-facing professionals. FSP submitted its own long-term recommendation to the LATF last December, incorporating the use of stochastic analysis—a statistical process deployed by insurance company home offices to test test illustration assumptions, but not utilized by them in the preparation of policy illustrations for presentation to consumers.
The LATF is trying to reconcile the positions of two groups on the issue. The two groups are a technical group that includes nine insurers led by PacLife; and a coalition that includes MetLife, Northwestern Mutual and New York Life.
A consensus is growing that the LATF will base the IUL illustrations guidelines on a blend of the technical group and the coalition proposals, that would produce a maximum illustrated rate of between 6 and 6.94 percent for a typical IUL product.
In addition, there are other issues that the LATF is wrestling with, including ensuring that the companies meet the illustration supportability requirements, as well as loan leveraging, the variable rate which can produce for those who borrow a loan rate that is lower than the crediting rate on the borrowed funds
