Officials at the U.S. Securities and Exchange Commission (SEC) are working on a new document template that could, possibly, make selling a variable annuity or variable life insurance contract feel a little less like wrapping a prospect’s brain in duct tape.
The SEC template makers are seeking public comments on the effort to create a new variable annuity and variable life summary prospectus that will let the light shine in.
Variable products issuers, and the financial professionals who help consumers understand the products, have been pleading with the SEC to create a summary prospectus for decades. The U.S. Treasury Department gave the variable products summary prospectus project a push in October 2017, by putting “talk to the SEC about this” in a department regulatory priorities report.
The SEC unveiled a summary prospectus proposal in October 2018.
Originally, the project managers set Feb. 15 as the comment submission date. The commenters complained about not having enough time. The SEC has since pushed the deadline back to March 15.
The comments already filed by the original Feb. 15 deadline are already on the web.
One anonymous commenter, who weighed in Dec. 12, 2018, has objected to the idea of the SEC having anything to do with the summary prospectus project.
The summary prospectus proposal “is a wasteful proposal, furthering the separation of classes in our great country,” the commenter states. “The outcome sought is at the benefit of the insurance industry, at the cost of the American people.”
Here’s a look at nine of the other ideas in the comments already submitted.
1. The name of the document
Members of the VIP Working Group — a team of eight attorneys representing six insurers that are active in the variable products market — have suggested “prospectus” may be a confusing term.
“Consider alternatives, such as ‘key information document,’” the working group writes.
An anonymous commenter who responded Dec. 28, 2018, said the vision expressed in the original SEC project notice seems to be too paper-based.
Instead of requiring rigid, paper-oriented formatting, “permit flexibility, such as a website with tabs for each section, instead of a serial document,” the commenter writes.
The SEC should also let an issuer make a prospectus more interactive and personalized, by eliminating the need for an issuer to file every single variation with the SEC, the commenter writes.
3. Flexible Wording
The Dec. 28 anonymous commenter says the SEC should consider requiring issuers to replace, or define, terms that may be familiar to regulators but not to consumers.
The commenter cites, “State the commissions paid to dealers as a percentage of purchase payments,” as an example of a direction that is not in plain English.
“I do not know what a ‘dealer’ is,” the commenter says.
4. Coordinating Issuers’ Flexible Wording
Susan Cheever, general counsel of Pacific Life Insurance Company, says the SEC should let issuers be somewhat flexible about the use of terms, to avoid locking issuers into use of old-fashioned terms, or terms that consumers don’t understand.
But the SEC still needs to create a framework that will help consumers compare with one summary prospectus with another one, Cheever writes.
“If carriers are provided the flexibility requested, industry ‘terms of art’ can be included in parenthesis with the new term and/or be used in the description or definition of such term,” Cheever writes. “For example, ‘surrender charge’ could be added in parentheses if the carrier described this feature as ‘the cost of terminating your contract early.’ By rephrasing ‘surrender charge,’ the consumer can more easily understand that there is a cost to them for terminating their contract too soon, but the industry term can still be included in that explanation for ease of reference and comparison.”
5. The Standard Example Amount