Regulators Press On With Nonforfeiture Guideline For UL
Work on an actuarial guideline that would require nonforfeiture values for products with secondary guarantees will continue despite a resounding call by insurers to end the project and a tepid response from regulators.
Proposed Guideline XYZ, which would require nonforfeiture values for universal life products with long guarantees, was debated during the winter meeting of the National Association of Insurance Commissioners here.
The debate centered on when a guarantee in effect makes a UL product comparable to a whole life policy.
Frank Dino, a life actuary in Florida and the lead regulator in the effort to develop the guideline, said that if a policy is offering long guarantees, extending up to 50 years, then it should be treated like a whole life policy and nonforfeiture values should be required.
Industry begged to differ, and did so in a letter signed by 21 major life insurance companies and the National Alliance of Life Companies in Rosemont, Ill.
During the discussion, regulators were told that there is “significant industry opposition” to the proposed guideline and that there is a “firm opinion that XYZ is not necessary and the end result of XYZ is anti-consumer.”
The proposed guideline would require companies offering UL and VUL products with secondary guarantees to calculate alternative sets of cash values related specifically to the secondary guarantee.
The proposed guideline establishes a UL cash value that is the greater of the cash value mandated by the UL regulation or the XYZ cash value.
The letter also noted that secondary guarantees are approved in virtually all states and are policy provisions that protect customers. It adds that explaining the XYZ cash value to a customer will be “extremely complicated.”
Chris Kite, a representative of FIPSCO, a software provider in Des Plaines, Ill., noted that the simplicity of the UL product made it easy for both agents and consumers to understand.
Regulators voted 7-3 to continue work on the project with two abstentions.
Prior to the vote, regulators debated the merits of proceeding with the model regulation.
Mark Greene, a life actuary with the New York insurance department, said that in New York a decision was made that UL products with secondary guarantees can be approved and questioned regulators authority to decide the legal intent of nonforfeiture language.
“Nonforfeiture is essentially a state issue,” said Larry Gorski, chief actuary with the Illinois insurance department. What will be important, according to Gorski, is to ensure in a draft note that the requirements of the guideline are optional, he advised.
Insurers expounded on concerns expressed in the industry letter. Burt Jay, a life actuary with Mutual of Omaha Life Insurance Company, said that additional administrative systems are costly to calculate and often the alternative cash values are just a few dollars higher and usually the same or lower.
Jay cautioned that “it would be a shame if it [the guideline] dried up demand for the product.” He recommended a disclosure requirement similar to one used in California.
Jim Van Elsen, a life actuary with Van Elsen Consulting in Pella, Iowa, called the guideline a “solution without a problem.” There will be more complaints when products are not available because of this regulation, he added.
But Gorski responded by saying that complaints often are not lodged right away. In the case of the race-based premiums issue, he continued, there were not many complaints for a long period of time. “A lack of complaints does not mean a lack of a problem,” he added.
Bill Koenig, a life actuary with Northwestern Mutual Life Insurance Company in Milwaukee, supported the proposed guideline. “Is zero the right answer? The Standard Nonforfeiture Law doesnt think so and the Standard Nonforfeiture Law doesnt offer disclosure as an option.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 17, 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.