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State regulators should make the annuity product performance illustrations that consumers get look a lot less like performance forecasts, according to two officers of the Life Insurance Consumer Advocacy Center.
Richard Weber, LICAC's treasurer, and Gerald Vanderzanden, LICAC's secretary, told the National Association of Insurance Commissioners' Life Insurance and Annuities Illustrations Working Group that one way to emphasize that the documents show how annuities could work, not how they will work, could be to make all insurers use a single, arbitrary crediting rate, such as 5%, when preparing the illustrations.
"No history, no projections," the LICAC representatives wrote in a comment letter sent to the working group. "Focus on how the annuity 'works' — not on what it's 'going to be worth' in the future."
If regulators want issuers and marketers to show consumers how annuities might work in many different scenarios, regulators could adopt a standard statistical forecasting "engine" and make all annuity issuers use that standard engine when creating illustrations, the reps said.
What it means: One of the key documents that advisors must hand to clients considering purchases of annuities could go through a big overhaul.
The backdrop: The NAIC is a group for state insurance regulators.
States can choose whether to use the model bills, model regulations, model forms and other materials it develops.
The group put the rules for annuity illustrations in the Annuity Model Disclosure Regulation, or Model 245.
Consumer groups, agents and insurers have argued that some issuers game the existing system and create illustrations that give consumers unrealistic ideas about how well their annuities could perform.
The new project: The Life Insurance and Annuities Illustrations Working Group put out a request for comments on the current illustration rules in March.
The working group has posted a collection of the comments it has received on its section of the NAIC's website.
The American Council of Life Insurers, for example, has recommended that regulators start by making use of existing model regulation provisions and by simplifying the required disclosures, to make the main points consumers need to understand more clear.
LICAC comment details: The LICAC reps said emphasizing the future value of an annuity is especially important when an annuity contract includes provisions that are subject to change.
An issuer should also list the provisions, such as expenses and riders, that set its product apart from similar products, and it should list and explain provisions that are guaranteed or are not guaranteed, the reps said.
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