Insurance industry pushes ‘quick fix’ for IUL clarification issues – InsuranceNewsNet

If regulators in the state are looking for a wide range of opinions on how to fix the disturbing cataloged global life illustrations from the comment period that closed last week, the job is done.

On one side, Larry J. Rybka, Chairman and CEO of Valmark Financial Group, tore up IUL’s existing illustrations and sales practices.

“The misuse of IUL products, especially when they are funded, presents a greater risk to consumers than anything I have seen in my 36 years in the business,” Rybka wrote. “NAIC must act decisively and swiftly to end this violation.”

On the flip side, industry representatives say a “quick fix” to existing rules will adequately address concerns.

Regulators have expressed interest in seeking a “quick fix” to this [Actuarial Guideline] 49-A to address concerns about the illustration of volatility-controlled indices,” the American Board of Life Insurance Companies wrote. We will support an effort to discuss and address specific regulatory concerns while maintaining clarity on key policy features. “

The letter added that ACLI only supports those changes to future policies, and they are not applied retroactively.

A comment period on the best way to fix an AG 49-A has been requested by the Life Actuarial Task Force, part of the National Association of Insurance Commissioners. LATF regulators Added a twist to his comment period: “In addition to considering limited and targeted revisions to the Life Insurance Illustrations Model Regulation (#582).”

Re-opening the college illustrations sample slate would be a major undertaking. Insurance companies and industry groups were not enthusiastic about the idea.

“We believe we need to better understand what the LATF hopes to achieve by opening a model regulation before we can comment fully,” Seth Detert, director and actuary for Life & Annuity products at Securian Financial Group, wrote. “Model regulation applies to several types of products, so adding IUL-specific language to the regulation could have unintended consequences that need careful thought and scrutiny.”

long history

The overall regulatory effort of the life insurance model was a grueling process that took years before it was adopted by NAIC in 1995. In the decades that followed, insurers came up with different product features that had Make illustration guidelines ineffectiveConsumer advocates say.

NAIC adopted AG 49 in 2015, but insurers quickly outlasted it by offering IUL products with multiples and bonuses. This led to AG 49-A, which was adopted in late 2020 following this LATF directive: “Designs with multiples or other improvements should not demonstrate better than non-duplicate designs.”

In another major change, the IUL illustrative lending rate was set at 50 basis points higher than the policy loan rate. In AG 49, the lending rate can be 100 basis points higher than the policy loan rate.

Still, what Many consider IUL’s illustrations to be unrealistic.

For example, some IUL fixed interest bonus can generate 60% higher picture income than a Benchmark account. [such as the S&P 500], wrote Sheryl Moore and Bobby Samuelson, two competing product intelligence analysts. The couple composed a pair of comment letters.

“This, in our opinion, is completely inconsistent with the intent of the regulators in drafting AG 49-A,” their initial letter stated. “The skill games currently occurring in the illustrations are similar in effect and prevalence with the buy-side limits and multipliers that proliferated after AG 49 and led to AG 49-A.”

Rybka reviewed sales materials from more than 100 proposed IUL transactions and more than a dozen cases filed, he wrote.

“We see very few places where the extent of risk is presented, let alone consumer understanding,” he added. “I think it’s similar to Warren Buffett’s warning about hedge funds, these are financial weapons of mass destruction. And unlike other clarification problems in the past, the damage isn’t just insurance that costs more, but it risks taking out large percentages of net worth clients.”

solutions offered

The most common “quick fix” offered via comments would “limit indexed indexed rates at 145% of each indexed account’s hedge budget,” says a letter signed by Allianz, John Hancock, Lincoln National and National Life Group, Pacific Life and Sammons Financial.

This will extend the 145% ‘assumed earned interest rate’ limit set forth in AG 49.

AG 49 states: “If an insurer engages in an index-based interest hedging program, the assumed earned interest rate underlying the current disciplined measure shall not exceed 145% of the annual net investment earnings rate.”

And while this quick fix won’t be a panacea, the insurers wrote, it’s a good start.

“While this approach can lead to some index calculations that are slightly above the benchmark calculation,” their letter reads, “it will rapidly reduce the reported values ​​for volatility-controlled indicators and allow regulators and interested parties to initiate a comprehensive analysis to define a scope, approach, and implementation of a solution. long-term “.

InsuranceNewsNet Senior Editor John Hilton has covered business and other businesses in more than 20 years of daily journalism. John can be reached in [email protected] Follow him on Twitter @INNJohnH.

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