A high-level group of insurance regulators has approved a compromise on the sale of small life insurance policies but put off resolving a dispute about life insurance guarantee reserves.[@@]
The group, the Life Insurance and Annuities A Committee of the National Association of Insurance Commissioners, Kansas City, Mo., decided here at the NAIC’s summer meeting to add several amendments to the NAIC’s Small Face Amount Life Insurance Policies model act.
Critics of small face value policies, or policies with death benefits of less than $15,000, have complained for years that some holders of the small policies end up paying premiums that exceed the value of the death benefits.
Regulators came up with a consensus here at the summer meeting by coming up with changes that emphasize disclosure to the contract holder.
“Did everyone get what they wanted out of the situation?” asked Walter Bell, Alabama’s insurance commissioner. “No.”
But the resulting compromise is a good product, Bell said.
NAIC members must approve the proposed amendments to the small face value policy model at a “plenary,” or gathering of all NAIC members, before the amendments can take effect.
Individual states must adopt the changes to the model before the changes can affect regulation of sales and administration of small value policies.
In related news, the NAIC’s A Committee decided to pause on another contentious issue, Actuarial Guideline 38, which addresses reserving for universal life products with secondary guarantees. The A Committee received a draft model adopted by the Life and Health Actuarial Task Force. The A Committee plans to hear more discussion about the draft at a public hearing.
The May 9 draft is one of several drafts that address UL product reserving.
A July 1, 2005, effective date was one point of concern. Companies might have had to initiate changes including product repricing and a change to systems, according to Mary Bahna-Nolan, a representative with the North American Company for Life and Health Insurance, Chicago.
But with the action deferred until a later time, the effective date could be applied retroactively.
Regulators at LHATF also expressed reservations about a sunset provision. Connecticut regulator Allen Elstein suggested that a sunset provision would put artificial pressure on efforts to establish a principle-based system for reserving.
Companies are, in general, in favor of a principle based approach to reserving, although the American Council of Life Insurers, Washington, will not take an official position on the issue until its June 24 board meeting.
The issue of a principle-based system was discussed in detail by in detail by representatives of the American Academy of Actuaries, Washington, during the meeting.
Among the points of discussion were 10 principles that would serve as a framework for a principle-based system for reserving for life products.
Using methodology that would appropriately capture risk and creating a regulatory review and governance process are 2 of the principles that were described by Dave Neve, a chairman of the actuarial academy’s UL working group and a representative of Principal Life Insurance Company, a unit of Principal Financial Group Inc., Des Moines, Iowa.