ACLI Pans Product Safety Idea

Splitting consumer regulation and solvency regulation “would lead to a breakdown of the entire risk classification system and potentially jeopardize the financial health of life insurers,” the ACLI warns. “Depending on its statutory mandate, this detached regulator may be solely concerned with imposing its own standard of ‘fairness’ on the life insurance marketplace without regard to solvency.”

The ACLI gives an example of a life insurer that designs an innovative new product and decides, based on sound actuarial data, that individuals in some high-risk professions should pay a higher rate due to a higher risk of loss.

“A detached product regulator, concerned solely with ‘consumer protection’ and without any regard to financial issues, might object to this and similar underwriting criteria, even if they are necessary for adequate pricing and proper matching of assets to liabilities,” the ACLI says.

“Efficient product regulation that is attuned to solvency concerns is critical to the financial health of life insurers,” the ACLI says.

Dividing the two responsibilities, “could force life insurers to choose between selling actuarially unsound products in order to maintain sales, or redesigning products that are actuarially sound, but which cannot gain timely market approval, or are not competitive with other financial products due to pricing requirements,” the ACLI concludes.