1987-2

REPORT OF THE MARKET CONDUCT AND CONSUMER AFFAIRS (EX3)
ADVISORY COMMITTEE
JUNE 22, 1987
Rules Governing the Advertising of Life Insurance and
Life Insurance Products Coupled with Annuities A’ITACHMENT FOUR
COMMENTS RECEIVED FROM INDUSTRY REGARDING PROPOSED AMENDMENTS
TO NAIC MODEL RULES GOVERNING THE ADVERTISING OF !JFE INSURANCE
American Academy of Actuaries, William T. Tozier, Chairman of the Task Force on non-guaranteed elements.
– Recommended modifications specific to definitions and sales illustrations directly related to life insurance products
which contain “non-guaranteed elements;” e.g. values, premiums or benefits whose amount is not guaranteed by the term of
the contract.
Response: The suggested changes were consistent with the intent of the proposal; and were incorporated into the draft of
the rule. MARKET CONDUCT SURVEILLANCE (EX3) TASK FORCE
1. Develop guidelines for use of the Regulatory Reporting Form, and monitor use of form on a total basis.
2. Continue development and study of life insurance products coupled with annuities model regulation.
3. Continue development of amendments to NAIC Model Rules Governing the Advertising of Life Insurance.
4. Study the feasibility of the creation of a data base for use in targeting market conduct examinations.
5. Study the feasibility of a separate Market Conduct Annual Statement.
6. Study and pursue development of Market Conduct Examiner Certification Program. A’ITACHMENT FOUR
COMMENTS RECEIVED FROM INDUSTRY REGARDING PROPOSED AMENDMENTS TO NAIC MODEL RULES GOVERNING THE ADVERTISING OF LIFE INSURANCE REPORT OF THE MARKET CONDUCT AND CONSUMER AFFAIRS (EX3)
ADVISORY COMMITTEE
JUNE 22, 1987
Rules Governing the Advertising of Life Insurance and
Life Insurance Products Coupled with Annuities

(151) – Rules Governing the Advertising of Life Insurance

Section 11. We underst.ood the original charge to be limited to addressing the new generation of interest-sensitive life products.

For this reason the task force believes that the regulation should be accompanied by objective demonstrations of the effect of
using either (i) a single mortality table such as the 1980 CSO Basic select male nonsmokers table or any other table the
advisory group considers most applicable or (ii) four such basic tables for at least a traditional plan, a universal life plan and
a single premium plan and at least two issue ages, 35 and 50 for example. These parameters may be varied by the advisory
committee if it seems necessary. (129) RULES GOVERNING THE ADVERTISING OF LIFE INSURANCE
DRAFT: 6/4/87 20. An advertisement shall not make unfair or incomplete comparisons of policies, benefits, dividends, nonguaranteed
policy elements,or rates of other insurers. An advertisement shall not Weely 81′ ~ 4eeePiee disparage
other insurers, theif: insurance producers, policies, services or methods of marketing.

Section IV. Form and Content of Advertisements
1. Advertisements shall be truthful and not misleading in fact or by implication. The form and content of an advertisement
of a policy shall be sufficiently complete and clear so as to avoid deception. It shall not have the capacity or
tendency to mislead or deceive. Whether an advertisement has the capacity or tendency to mislead or deceive shall be determined by the Commissioner
of Insurance from the overall impression that the advertisement may be reasonably expected to create upon a
person of average education or intelligence within the segment of the public to which it is directed. 2. No advertisement shall omit material information or use words, phrases, statements, references or illustrations
if such omission or such use has the capacity, t.endency, or effect of misleading or deceiving purchasers or prospective
purchasers as to the nature or extent of any policy benefit payable, loss covered, premium payable, or state or federal
tax consequences. The fact that the policy offered is made available to a prospective insured for inspection prior to
consummation of the sale, or an offer is made to refund the premium if the purchaser is not satisfied, does not remedy
misleading statements. 7. An advertisement for a policy containing graded or modified benefits shall prominently display any limitation
of benefits. If the premium is level and coverage decreases or increases with age or duration, such fact shall be prominently
disclosed. A life insurance policy under which the death benefit varies with the length of time the policy has
been in force shall accurately describe and clearly call attention to the amount of minimum death benefit under the
~
8. Premiums 13. Eli il~ends &B<i Nonguaranteed Policy Elements
(a) An advertisement shall not utilize or describe Eli 4EleeM nonguaranteed policy elements in a manner
which is misleading or has the capacity or tendency to mislead.
(b) An advertisement shall not state or imply that any nonguaranteed element is guaranteed. No illustration
of nonguaranteed elements shall illustrate benefits greater than those currently being provided by the
company unless such illustration of nonguaranteed elements has a basis that has been publicly declared by
the company with an effective date for new issues not more than three months subsequent to the date of illustration.
(c) An advertisement shall not state or imply that illustrated di J’iEleaEleUMel’ p&Ri.eipHi.ngpeliey&Mf nonguaranteed
policy elements, e11 fM1P8 eBde ,RBeMS will be or can be sufficient at any future time to assure,
without the further payment of premiums, the receipt of benefits, such as a paid-up policy, unless the advertisement
clearly and precisely explains (1) what benefits or coverage would be provided at such time and (2)
under what conditions this would occur.
@ An advertisement shall not refer to dividends as ”tax free” or use words of similar import, unless the tax
treatment of dividends is fully explained and the nature of the dividend as a return of premium is indicated
clearly.
~ Any illustrations or statements containing or based upon nonguaranteed elements shall set forth with
equal prominence comparable illustations or statements containing or based upon the guaranteed elements.
(f) Any advertisement or illustration shall state when and under what conditions the company intends to
change any nonguaranteed elements.