Here are 4 things financial services regulators in the Netherlands and Australia are saying about financial products disclosures...

1. 'People aren't dumb, the world is hard.

Many financial decisions are just plain hard to make, no matter what the disclosures are like, AFM and ASIC say.

2. Few consumers pay much attention to disclosures.

Consumers have plenty to think about, and companies may use ads, skilled sales pitches, 'choice architecture,' and web design tricks to reduce the odds that consumers will read the disclosures, AFM and ASIC say.

3. Different situations may require different approaches to disclosures

People have different ways of getting information, and they may think more carefully about transactions they're emotional about, such as decisions related to buying a house, than about other transactions, AFM and ASIC say.

4. Disclosure rules may backfire.

Advisors who disclose important conflicts of interest may seem more trustworthy, and disclosing conflicts may make advisors feel more comfortable with giving biased advice, AFM and ASIC say.

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A consumer group is asking state insurance regulators to work in 2020 on making the performance illustration rules for indexed life insurance products more like the illustration rules for indexed annuities.

The Center for Economic Justice says the Life Insurance and Annuity Committee, part of the National Association of Insurance Commissioners (NAIC), should turn its Annuity Disclosure Working Group into a Life Insurance and Annuity Illustrations Working Group.

(Related: Stop Bashing the Life Policy Summary Update Effort: Birny Birnbaum to Industry Groups)

The working group should develop principles for product illustrations, identify problems with current life insurance and annuity product advertising, and ensure consistency between the NAIC’s life insurance illustration and annuity illustration models, the center says.

The center has asked the life committee to put those goals in its official list of “charges,” or list of things to do, for 2020.

Members of the life committee considered the proposal during a conference call meeting Monday.

Michael Lovendusky, a vice president at the American Council of Life Insurers (ACLI), says the ACLI would like to see the committee put off making a decision about the Center for Economic Justice charges proposal at least until the NAIC’s upcoming fall national meeting in Austin, Texas. The NAIC is set to start the meeting Dec. 7.

The NAIC

The NAIC is a Kansas City, Missouri-based group for state insurance regulators.

It can’t normally set insurance rules, but state legislators and regulators often start with NAIC models when developing their own laws, regulations and forms.

Illustrations

An illustration is a chart showing how a life insurance policy, annuity or other product has performed in the past, or how it might perform in the future.

The Center for Economic Justice has argued that some life insurers seem to be making decisions about product investment option menus and product illustrations that leave out what happened during the 2007-2009 Great Recession, or that may give consumers misleading ideas about how the products could perform in the future.

“One major problem is that the approaches to illustrations for life insurance and annuities — particularly for indexed products — are radically inconsistent even for products that operate in a similar fashion,” the center says in its 2020 charges proposal. “Annuity illustrations requirements don’t cap crediting rates, so insurers turn to bespoke indexes.”

A cap rate is a provision that limits how much of the gain in an investment index that an insurer will let an index-linked product holder keep.

Illustrations for indexed universal life (IUL) products do cap the crediting rates, and that makes use of unusual investment index options rare in the world of IUL products, the center says.

Instead, the center says, some life insurers use features such as multipliers and bonuses to make IUL products look better than they really are.

Disclosure Paper

The center also asked members of the committee to read “Disclosure: Why It Shouldn’t Be the Default.”

Regulators at the Dutch Authority for the Financial Markets (AFM) and the Australian Securities and Investments Commission (ASIC) developed the paper to discuss the weaknesses and limitations of financial services product disclosure requirements.

For a look at four points from the AFM-ASIC disclosures paper, see the idea cards in the slideshow above. (Wiggle your pointer over the first slide to make the slideshow control arrows show up.)

Related

A link to the NAIC Life Insurance and Annuities Committee Nov. 4 meeting packet is available here, under the Meeting Materials tab.

— Read Phishers Are Using the NAIC Logo to Hook Producerson ThinkAdvisor.

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