{"id":14870,"date":"2019-04-17T09:14:00","date_gmt":"2019-04-17T13:14:00","guid":{"rendered":"http:\/\/lifeinsurance-orleans.ca\/Life-Insurance-Blog\/is-another-indexed-universal-life-illustration-fight-pending\/"},"modified":"2019-04-17T09:14:00","modified_gmt":"2019-04-17T13:14:00","slug":"is-another-indexed-universal-life-illustration-fight-pending","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/04\/17\/is-another-indexed-universal-life-illustration-fight-pending\/","title":{"rendered":"Is Another Indexed Universal Life Illustration Fight Pending?"},"content":{"rendered":"\n
<\/div>\n

\nState insurance regulators are taking another look at controversial indexed universal life illustrations \u2014 albeit with some trepidation.<\/p>\n

\nAfter all, it has only been a shade over three years since a National Association of Insurance Commissioners\u2019 working group produced Actuarial Guideline 49, which was supposed to rein in illustrations.<\/p>\n

\nA new working group quietly began looking at IUL illustrations this winter. The group has a 2019 charge to \u201cprovide recommendations for modifications to AG 49 to the Life Actuarial (A) Task Force.\u201d<\/p>\n

\nFred Anderson, acting deputy commissioner of insurance for Minnesota, issued eight questions for the group to consider over many months of conference calls.<\/p>\n

\n\u201cMy high-level study has shown that IUL products are different now than they were in 2015,\u201d Anderson said during a February call. \u201cThere\u2019s additional probability for upside, but higher probability for downside.\u201d<\/p>\n

\nMeanwhile, insurers continue to push the boundaries on IUL, analysts say, with new products illustrating higher and higher returns.
\u201cIndexed UL is an illustration war,\u201d Bobby Samuelson, former senior vice president of product development for Brighthouse Financial, called it.
In particular, new IUL products by Lincoln Financial and Pacific Life are illustrating high rates, he added. Samuelson does product reviews for subscribers and recently studied both the WealthAccumulate IUL 2019 by Lincoln and the PacLife PDX IUL 2.<\/p>\n

\nBoth use creative crediting strategies and options, which the insurers tout as offering flexibility and control, but critics say they contribute to inflated and unrealistic illustrations. A Pacific Life spokesperson declined comment; Lincoln did not respond to requests for comment.<\/p>\n

\n\u201cThe IUL space is not like the rest of the industry in that the heavyweights in IUL have not traditionally been the heavyweights in the other product categories,\u201d Samuelson explained. \u201cI think they\u2019ll sell a lot more than they have in the past and it\u2019s going to spur other companies who feel increasingly desperate about their own sales to do similar things.\u201d<\/p>\n

\nMultiply It<\/h2>\n

\nThe issue involves IUL multipliers, which will take whatever index credit is paid for a year and multiply it by one plus the Percentage Multiplier Bonus Rate.<\/p>\n

\nFor example, one carrier pays an additional 15 percent on top of the rate returned by the index strategy in effect that year \u2014 that\u2019s 1.2 percentage points if the index returns 8 percent, making the total return 9.2 percent in this instance.<\/p>\n

\nAG 49 was developed to provide insurance carriers a more uniform method for calculating maximum illustrated rates on IUL products and to help consumers better understand index life insurance product illustrations.<\/p>\n

\nAG 49 states that: \u201cIf an insurer engages in a hedging program for index-based interest, the assumed earned interest rate underlying the disciplined current scale shall not exceed 145 percent of the annual net investment earnings rate.\u201d<\/p>\n

\nCompanies are using index performance multipliers on IUL products in order to skirt this requirement, said James Regalbuto, deputy superintendent for life insurance at the New York Department of Financial Services, during a call.<\/p>\n

\n\u201cIf you\u2019re creating a product with these multipliers, or these bonuses, you\u2019re not constrained by that 145 percent limitation on the options budget,\u201d he said.<\/p>\n

\nRegalbuto urged the group to \u201clook at whether these types of returns are even supportable based on the underlying economic theory of buying up, or charging the consumer more to buy a larger options budget, and then assuming long-term that you\u2019re going to make all this money on these options relative to a fixed product that\u2019s effectively got the same cost structure.\u201d<\/p>\n

\n\u2018Very, Very Difficult\u2019<\/h2>\n

\nSome of the new IUL product designs are so complicated, some industry analysts say it is hard for agents, let alone clients, to understand how they work.<\/p>\n

\nThe Lincoln WealthAccumulate 2019 includes a \u201cPositive Performance Credit\u201d beginning in year two. The PPC is a non-guaranteed multiplier that boosts returns if the market performs well. It is a confusing concept at best, Samuelson said.<\/p>\n

\n\u201cIt will be very, very difficult for a client to look at an illustration and say \u2018I understand how that multiplier works\u2019 because illustrations use a constant rate and the PPC depends on the specific sequence of returns,\u201d he explained. \u201cThere\u2019s a fundamental mismatch between how the PPC works and how illustrations work, but there are significant illustrated benefits for using the PPC.\u201d<\/p>\n

\nNot all insurance commissioners oppose the multipliers. Rhonda Ehrens, chief actuary at the Nebraska Department of Insurance, questioned whether the multipliers are \u201clike a bonus\u201d that just needs to be better explained to consumers.<\/p>\n

\nDuring a group call, she debated Regalbuto over whether a typical IUL policy with a couple years of zero returns will quickly lapse.<\/p>\n

\n\u201cWhat I think is even more nefarious here is when we over-illustrate the product … through multipliers, the planned premium that consumers are making is going to be less than if they received a truer expectation of what the likely return of the policy is going to be,\u201d Regalbuto said. \u201cWe can all kind of recognize that products being sold today are being underfunded and I think there\u2019s a real urgency to do something about that problem.\u201d
Ehrens disputed the notion that IUL policies are habitually lapsing after just a couple years of zero returns. If so, they were not sold correctly, or not understood correctly by the consumer, she said.<\/p>\n

\n\u201cMaybe we need to address some disclosures and things like that a little bit more than just the calculations,\u201d she said. \u201cAnd be sure that consumers understand that you don\u2019t get the high end without the risk of the low end. The companies that I\u2019ve talked to do not intend to have people lapse after two bad years of bad returns. They intend for people to wait it out.\u201d<\/p>\n

\nCustomers understand the extremes, Regalbuto countered, and that an index-linked policy can offer incredible highs, or depressing lows. The suppression of premium caused by the promise promoted by multipliers is a real problem, he reiterated.<\/p>\n

\n\u201cI agree that no company wants the product to lapse after a couple years, but there are a lot of companies that would make a lot of money if the products lapsed a couple years before life expectancy,\u201d Regalbuto said.<\/p>\n

\nBuyer Beware<\/h2>\n

\nOther members put some of the onus on consumers. Vincent Tsang, actuary for the Illinois Department of Insurance, suggested requiring one \u201coptimistic\u201d illustration, accompanied by a \u201cpessimistic\u201d one.<\/p>\n

\n\u201cAt the end of the day,\u201d he added, \u201cI think the policyholder should take some responsibility in what they are buying.\u201d<\/p>\n

Read the original article at InsuranceNewsNetMagazine.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

State insurance regulators are taking another look at controversial indexed universal life illustrations \u2014 albeit with some trepidation. After all, it has only been a shade over three years since a National Association of...<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/14870"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=14870"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/14870\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=14870"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=14870"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=14870"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}