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A look at the future of life insurance policy illustrations

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(Las Vegas) The topic of illustrations for life insurance product sales and marketing purposes has become a hot button issue among consumers, regulatory groups and life insurance companies. 

Speaking on the topic at the 2016 LIMRA Life Insurance Conference in Las Vegas were:

  • Michael Lovendusky, vice president and associate gerneral counsel, American Council of Life Insurers
  • Barbara Ernst, vice president, marketing, Prudential and the co-chair of the ACLI working illustrations working group 
  • Paul W. Skalecki, vice president and actuary, Northwestern Mutual and co-chair of the ACLI working illustrations working group

“You’re coming in at the ground floor of a topics that has legs,” said Lovendusky.

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Indeed, the topic of illustrations, especially those associated with Indexed Universal Life policies, has become so heated that the ACLI created a working group to hopefully solve a potentially image-tarnishing dilemma and give guidance to the NAIC on how to proceed with regulations. 

As Lovendusky noted, the NAIC illustrations working group had its inaugural meeting in New Orleans Sunday during the NAIC Spring 2016 National Meeting. He added that there is a new NAIC website that now has materials regarding illustrations. “These are useful resources for today and going forward,” he said. 

Also on the NAIC site is the new charge regarding illustration regulations.

“It’s interesting to note that the charge is focusing not on the numerical elements, but on the narrative elements,” Lovendusky noted quizzically. 

Evolution of illlustrations 

The history of life insurance product illustration regulations goes back to the early 90s, Skalecki noted. A letter was written by a U.S. Senator saying life insurance consumers don’t have enough information for what they’re purchasing. “Illustrations at the time were said to be just a sales inducement vehicle,” he noted. “Back then, much of the time was spent developing the illustration regulation.”

“There was a lot of selling to the illustration because there was so much information there,” Ernst added. “There is the question of ‘what is the role of the financial advisor?’ when it comes to the illustrations. The questions have just grown because products have evolved.”

And that, as we know, makes illustrations more complicated and sometimes less consumer-friendly.

“As you get more features in illustrations, you need more descriptions, more disclosures,” Skalecki said. “It can get confusing, we have to make sure the client understands what they’re purchasing.”

However, as Skalecki noted, there’s not as much confusion with term life as there is with whole life.

“I would agree,” said Ernst. “I’ve done a lot of consumer research and, generally speaking, consumers are confused about life insurance before they even start. Term is an easy policy to understand, but it’s still on us to make sure they’re all understandable.”

Make it modern 

Lovendusky noted that one of the refrains heard from the consumer representatives is that “we must do this in a new, modern format: electronically.” Consumers want the ability to pull up their product illustrations on their tablet or phone, and they want them easy to read when viewed in digital formats. 

Skalecki said his company, Northwestern Mutual, is working on becoming more modern with product illustrations.  

Ernst agreed but reminded the audience that we have to think about the original purpose of the illustrations. “The illustration is not the contract, it serves a different purpose,” she said. “Is a consumer supposed to take an illustration and decipher that document? In the world we live in today, probably not. In the future, who knows.”

And it all brings us back to consumer research. What, exactly, do consumers need?

“I think one of the NAICA recommendations this summer is to finance consumer research,” Lovendusky said. 

“But is it research to determine what we concentrate on with the illustrations, or is it research to tell us how to fix current illustrations?” Ernst questioned.

As of now there is no answer and no fix, but the ACLI working group is leading the ‘back to basics’ charge to make life insurance policy illustrations more simple and transparent, leading to more informed consumers and, in the end, more policies written. 

Check out our coverage of the 2016 LIMRA Life Insurance Conference here.


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