Insurers that try to illustrate annuity performance graphically should provide at least 2 standard illustrations, a veteran actuary says.
Steven Ostlund of the Alabama Department of Insurance has given that recommendation in a comment letter submitted to the Annuity Disclosures Working Group at the National Association of Insurance Commissioners, Kansas City, Mo.
In the comment letter, Ostlund praises efforts by the American Academy of Actuaries, Washington, to help develop standard illustrations.
Ostlund notes that an example in a current proposal provides “information for a consumer who would choose to withdraw interest earnings until age 65.”
That scenario appears to be unlikely, Ostlund writes.
Instead, Ostlund writes, he would prefer to see an insurer provide one illustration that shows what would happen if a consumer holds a contract to maturity, as intended.
The second illustration should show how fast the consumer could cash out of the contract without penalty, Ostlund writes.
“The company should then be allowed to provide additional illustrations if desired,” Ostlund writes.
The intended role of an annuity also may affect the illustration, Ostlund writes.
“If our intention is to focus the consumer’s attention on the retirement income generation, we should include a column displaying the monthly income available at each point in time,” Ostlund writes.
Ostlund says insurers ought to illustrate the annuity option that generates the greatest income.
In many cases, that would be the “life” option, with an assumption that there are no guaranteed periods or death benefits, Ostlund writes.