A consumer representative says industry groups should ease up on state regulators’ efforts to develop new life insurance illustration summary rules.
The National Association of Insurance Commissioners’ Life Insurance Illustration Issues Working Group is in charge of the summary update project.
Birny Birnbaum, executive director of the Center for Economic Justice, says representatives from the American Council of Life Insurers (ACLI) and the National Association of Insurance Financial Advisors (ACLI) are exaggerating how much impact proposed delivery time rules would have.
Industry reps are also have unrealistic ideas about how the policy summary delivery rules should relate to life insurance agents, Birnbaum says.
“The explicit charge to the working group is to review specific consumer disclosures, not to promote agents in the sales process,” Birnbaum writes in comments sent to the working group.
The NAIC is a Kansas City, Missouri-based group for state insurance regulators. It cannot normally set insurance rules, but states often start with NAIC models when developing their own rules. In some cases, states may arrange for some types of NAIC rule and parameters updates to apply in their jurisdictions automatically.
The Life Insurance Illustration Issues Working Group
Members of the NAIC’s Life Insurance Illustration Issues Working Group are trying to come up with ways to improve the narrative policy summary required by Section 7B of the NAIC’s Life Insurance Illustrations Model Regulation (Model Number 582) and the policy summary required by Section 5A(2) of the Life Insurance Disclosure Model Regulation (Model Number 580).
The working group is supposed to look at ideas for promoting “consumer readability and understandability of these life insurance policy summaries, including how they are designed, formatted and accessed by consumers,” according to the working group’s section of the NAIC website.
One issue is when consumers should get any policy overview summary.
Birnbaum and many regulators say consumers should get the overviews as early as possible.
Michael Lovendusky, an ACLI rep, and Gary Sanders, a NAIFA rep, have opposed efforts by the working group to require that insurers provide the policy overviews when consumers are applying for coverage, rather than when insurers have delivered policies to the purchasers.
Lovendusky has argued that changing the summary delivery timing rules is outside the scope of the working group’s charges.
Sanders has argued that delivering summaries early could lead to the overviews too general, and to diminishing the role of life insurance agents in helping consumers understand coverage options.
Birnbaum says Lovendusky is wrong about the working group exceeding its charges, and that Lovendusky has proposed changes that would exceed the working group’s charges.
Birnbaum says the working group’s charges state that the working group is supposed to look into “consumer access” to the summaries.
“It would indeed be a novel interpretation of ‘consumer access’ to exclude the timing of delivery of the document the consumer can access,” Birnbaum writes.
Birnbaum also rejects the idea that delivering policy overviews before the delivery of the policy would “empty them of consumer value.”
The vast majority of the data elements in the summary are generic in nature, and the main piece of personalized information is the policy premium, Birnbaum writes.
The premium is based on information known to the producer or insurer at the time of application and subject to change based on additional or revised information, Birnbaum writes.
“That information can be provided prior to purchase,” Birnbaum writes. “If an insurer can produce an illustration for a complex, investment-type life insurance product prior to the consumer purchase, it is clearly possible for an insurer to provide the premium for a policy prior to purchase.”
Birnbaum goes on to object to Sanders’ contention that early policy overview access could weaken the role of the agent.
The top of the draft policy overview includes a provision stating that, “‘If you have questions about this particular life insurance product, ask the agent, broker, advisor, or a company representative offering this product for clarification,’” Birnbaum writes.
Sanders has argued that consumers need agents, not just written materials, to understand life insurance policies.
“This claim will no doubt surprise the many consumers who purchase life insurance online using digital technology as well as the insurers and insurtechs developing accelerated underwriting to educated and speed consumers through the purchase process,” Birnbaum writes.
Birnbaum adds that the policy overview would simply give consumers basic policy feature information in a consistent format, to help the users compare products from different issuers.
“It is not and never has been promoted as substitute for other information needed to help a consumer select and understand life insurance products,” Birnbaum writes.
Links to information about the Life Insurance Illustration Issues Working Group’s activities are available here.
— Read What the Heck Is a ‘Financial Instrument’: Annuity Model Commenter, on ThinkAdvisor.