Disclosure Remains Focus Of Small Face Amount Issue

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The breadth of disclosure covered by the Disclosure for Small Face Amount Life Insurance Policies Model Act is one issue that will be discussed during the fall meeting of the National Association of Insurance Commissioners later this month.

A policy with $15,000 or less in face amount is considered a small face amount policy. Under the current draft, a statement making a policyholder aware that premiums had exceeded face amount would be required.

This issue, along with whether insurers are looking for multiple beneficiaries when an insured dies, is being examined by regulators. Their examination started with a separate investigation of how insurers charged policyholders different premiums based on race.

Disclosure remains the focus of the draft model, according to Leslie Jones, a life actuary with the South Carolina department of insurance.

But issues that will be discussed as the model moves toward a possible December adoption include further discussion on exemptions for group products, she says.

The current draft would exempt variable life insurance, individual and group annuity contracts, credit life insurance and group or individual policies issued to members of an employer group where the employer chose coverage, a portion of the premium is paid by the group or through payroll deduction or group underwriting or simplified underwriting.

Jones says the disclosure document developed for small face amount policies may also be used for home service products.

The disclosure document in the small face amount model is generic and not date-specific, according to Jones. Date-specific disclosure states when a policy’s total premiums will exceed the policy’s face amount.

Jones says that in a separate but related decision, the small face amount working group of the NAIC decided by a vote of seven-to-five not to pursue an actuarial study on the magnitude of the issue of premiums exceeding face amount.

The issue of whether multiple beneficiaries are being paid is being addressed in Illinois with a proposed regulation, according to Illinois Insurance Director Nat Shapo.

The regulation is currently being considered by an Illinois joint commission on administrative rules.

The issue and how it is being addressed in Illinois will receive further consideration by the NAIC at the fall meeting, according to Jones.

Brenda Cude, a funded consumer representative with the NAIC, says that not pursuing an actuarial study is a “bad thing” because it leaves a lot of questions unanswered regarding the market.

Cude says a disclosure document will at least provide agents, insurance departments and other consumer representatives some information on how to calculate when premiums exceed face amount. But she adds that some state legislatures are taking steps of their own.

Scott Cipinko, executive director of the National Alliance of Life Companies in Rosemont, Ill., says that if the industry attempted to compile actuarial data, it could face antitrust issues on the one hand, and have the results questioned as biased on the other hand.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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