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A longtime life insurance agent says the current U.S. Securities and Exchange Commission effort to create a summary prospectus for variable life insurance and variable annuity contracts is on the wrong track.

Benjamin Baldwin Jr. — an Illinois financial services veteran who holds the Chartered Financial Consultant and Certified Financial Planner designations as well as the Chartered Life Underwriter designation —  has told the SEC that the fundamental problem is that simple paper illustrations do a poor job of showing how variable products will really work.

The SEC should focus less on trying to create a great paper-based summary for variable products and put more emphasis on interactive systems, Baldwin writes, in a comment on the SEC’s variable product summary prospectus project.

(Related: 9 Ideas for Making the SEC’s Annuity Summary Prospectus Shine)

“Provide consumers and agents with an iPad-like device having the ability to vary the assumptions used in a visual illustration, enabling the agent and client to see the effect on policy capital as the inputs are changed,” Baldwin writes.

The Project

Life insurers and variable product sellers have been asking the SEC to create a summary prospectus template for years.

A mutual fund provider can already offer consumers a summary prospectus. Many players in the life insurance industry have argued that the lack of a summary prospectus for variable products makes selling the variable products much harder than selling mutual funds.

The SEC has had a variable product summary prospectus project on its to-do list for years. In late 2017, the U.S. Department of Labor said it would do what it could to speed up the SEC’s variable product summary prospectus project.

The SEC unveiled a variable product summary prospectus mockup in October and is putting that proposal through a public comment period.

What Baldwin Says

Baldwin started Baldwin Financial Systems LLC in Arlington Heights, Illinois, in 1982 and sold the firm to his daughter in 2014. He has been in the insurance industry since 1964, and he continues to serve that firm as director emeritus.

He says in his comment letter that the problem with traditional, paper-based variable product illustrations is that they are designed to show how value will likely grow over time.

“The illustration always indicates success at issue, otherwise compliance officers would not allow it to be sold,” Baldwin writes.

The problem is that the illustrations fail to show what will happen when key variables, such as interest rates or stock prices, change, Baldwin says.

“No matter how many times, or how many footnotes and experts, tell consumers and agents that the illustration is not the contract, both consumers and agents focus on the paper illustration and believe the upward trajectory of capital,” Baldwin writes.

The current illustration rules  have caused much of this dependence on linear drawings showing how policy values will grow, Baldwin says.

If, instead of getting a paper illustration, consumers received a tablet running a performance projection system, that tool “would eliminate the need for the mind-numbing rows of numbers of paper illustrations that do not promote understanding,” Baldwin says.

Agents and consumers “would quickly see on an initial and ongoing basis the effect on [the] policy when the insurance company changed any of the non-guaranteed elements within contractual parameters,” Baldwin adds.

 

He says tablet-based illustrations could also help consumers could see the effects of their own premium payments, and other behavior, on policy value.

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