The Securities and Exchange Commission has unanimously approved a new registration form that is tailor-made for variable life insurance.
The approval, which came during the Commissions April 11 meeting, is the culmination of a nearly 10-year long effort by life insurers to develop a form specifically suited to variable life.
Carl Wilkerson, chief counsel with the American Council of Life Insurers, Washington, notes that no one has seen the final version of the registration form that the SEC approved.
During the April 11 meeting, Wilkerson notes, the commissioners discussed the form and voted on whether to accept it, but it will take another five to seven days before the form is published.
Nonetheless, Wilkerson says, he is confident that the new form will be simpler, streamlined, shorter and provide information to consumers in plain English.
Indications from the meeting are that the SEC incorporated some changes suggested by ACLI to the form that was proposed in 1998, he says.
For life insurers, Wilkerson says, the new form will have significant savings in terms of printing, postage and storage costs thanks to the streamlined disclosure and plain English requirements.
Moreover, he says, it will put variable life on an equal footing with mutual funds, which have had a streamlined prospectus for some time.
The new form will also benefit consumers, Wilkerson says, since it will be easier for them to read variable life documents and thus make a more informed purchasing decision.
Wilkerson notes that the current variable life registration form is a blend of pre-existing forms that were never designed for this product.
Wilkerson says that while he is confident the new form will be streamlined, insurers will not know how the SEC resolved certain important issues until the form is published.
These issues, he says, include the depiction of fees and charges and the standards for policy illustrations.
In other regulatory news, the National Association of Insurance and Financial Advisors, Falls Church, Va., is asking the Federal Trade Commission to state explicitly that those engaged in the business of insurance are exempt from a proposed rule on telemarketing.
“As the primary regulators of the business of insurance, the states have extensive expertise and experience with respect to insurance,” NAIFA says in a formal comment to the FTC.
Every state, NAIFA says, has unfair trade practices statutes that are insurance-specific. These statutes, NAIFA says, reach telemarketing practices in order to protect consumers from fraudulent and abusive marketing of insurance products and services.
David Winston, NAIFAs vice president of government affairs, notes that a “Background” section of the proposed rule states that those engaged in the business of insurance are not covered by the rule, since the business of insurance is exempt from the FTC act.
However, he says, this language does not appear in the proposed rule itself.
This could be a problem, Winston says, because the FTC is not the only entity that will be able to enforce the final rule.
State attorneys general and private citizens are authorized to bring civil actions to enforce compliance and obtain damages for violations of the rule, he says.
“We believe these other entities could hold insurance and financial advisors responsible for compliance with the Final Rule, if not clarified, even though the FTC cannot bring an enforcement action against them,” Winston says in the letter.
NAIFA is asking the FTC to clarify the situation by explicitly stating in the text of the final rule that those engaged in the business of insurance are fully exempt.
Finally, as this issue was going to press, the House of Representatives was scheduled to vote on legislation that would allow insurance agents, companies and others that provide services to employer sponsored pension plans to also offer investment advice to plan participants, subject to strict disclosure requirements.
The investment advice language is strongly supported by NAIFA and ACLI.
The legislation, H.R. 3762, is widely expected to be approved by the House. For an update on the Houses action, check the National Underwriters web site at www.nationalunderwriter.com.
In addition to the investment advice language, H.R. 3762 would require plan administrators to provide participants with 30 days notice of lockdowns.
Lockdowns are periods of time during which plan participants are not allowed to divest or diversify their assets.
The legislation also imposes fiduciary duties on employers during lockdowns, unless they meet certain specified requirements.
In addition, the legislation bars pension plans from placing restrictions on the divestment of the employers own securities if the participant has been in the plan for at least three years.
H.R. 3762 was developed in response to allegations of fraud and self-dealing arising from the Enron bankruptcy.
Reproduced from National Underwriter Life & Health/Financial Services Edition, April 15, 2002. Copyright 2002 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.