Illustrations

Illustrations, as everyone in this profession knows, are merely a projection of what policy values would develop under one set of assumptions.

— JUDY FAUCETT

1992– LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries – 16p

Larry Gorski of the Illinois department mentioned that in states that do not regulate advertising or promotional materials, misleading statements can be rampant in those materials even if the illustrations are made pure.

—  BENJAMIN J. BOCK, Transamerica Occidental

1992– LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries – 16p

“So what do I think is needed?

  • Today’s disclosure is far too complex.
  • If policyholders can’t understand most illustrations even with help, what are they to do?
  • There’s information overload.
  • The regulations we have are not being used consistently across
    the country.
  • More numbers are not necessarily the answer, but maybe less are.
  • More words are necessary to explain what’s going on.
  • The regulations, if they are changed, should force more disclosure of what the risks are and “what if” illustrations
    should be mandated.
  • We have to make clear to the policyholder that the illustration is
    not a prediction, it does not promise what’s going to happen.”  —  MR. BRUCE E. BOOKER 1993 – Sales Illustrations – We Can’t Life with Them, But We Can’t Life Without Them!, Society of Actuaries
ATTACHMENT SIX-A3
Position Paper
Life Insurance Illustrations
By the Life Insurance Disclosure Working Group of the Life Insurance (A) Committee
August 1993
Draft: 9/7/93
I. Charge to the Working Group
The working group has been charged to evaluate policy illustrations and to consider establishing requirements for the illustrations or ledger information disclosed or made available to consumers of life insurance.
The working group received and reviewed information from the following sources:
A. American Academy of Actuaries Task Force on Life Illustrations;
B. Testimony of witnesses before the Antitrust, Monopolies and Business Rights Subcommittee, Committee of the Judiciary, U.S. Senate, June 23, 1992;
C. National Association of Life Underwriters Sales Illustrations Task Force;
D. Consumer Reports July-September 1993 report on life insurance, especially the sections on sales illustrations, by Trudy Lieberman;
E. “Illustrations, Ethics and You,” a seminar by the Society of CLU and ChFC;
F. “Fungible Present Value Analysis” by Brian Fetchell;
G. California proposed legislation on ledger illustrations and the comments received on the proposal;

1993-3

Who Produces Illustrations?  Agents? or Actuaries?

…..but I’d like to point out one other real problem, and that’s that most of these illustrations are not made up in the home office–they’re produced on laptops in the field.

1995 – PRACTICAL ILLUSTRATIONS AND NONFORFEITURE VALUES, Society of Actuaries – 14p

He questioned the appropriateness of taking non-guaranteed elements and making them guaranteed as suggested as a penalty in the white paper.

1993-3

Illustration – Definitions

1994-3 p565 (607)

“Commissioner Wilcox responded that the definition of illustration included more than a ledger.”

From the 1990s

  • 1994-3 P515
    a) Commissioner Robert Wilcox (Utah) said that the working group had drafted a list of standards that they wish to see included in a model law and regulation eventually adopted (Attachment Four-A).
    b) Commissioner Wilcox next asked Ms. VanLeer to show the illustrations she had prepared that used the standards in the technical resource advisors’ draft to prepare an actual illustration (Attachment Four-C).
  •  1993-4 P30
    (1) Attachment One-K – A preliminary report from the American Academy of Actuaries Task Force on Life Illustrations.
    (2) Attachment One-L – A package of material from the California Department of Insurance dealing with proposed legislation on life insurance illustrations
  1. Questions & Answers Life Illustrations Model Regulation as of Dec. 17, 1996
    1. ATTACHMENT ONE-A
“On perhaps the bad side, the potential buyer is now being subjected to sales illustrations from companies that look identical to him. Some of these have 7% current scale interest rates, some have 13%, some are front loaded, some are back loaded. He sees all kinds of different promises. How can he assess the credibility of these proposals? What promises are actually being made? How much risk is he taking and how much is he transferring to the insurer?” MR. BRUCE E. BOOKER
1988, UPDATE ON UNIVERSAL LIFE RESERVES AND NON-FORFEITURE VALUES, Society of Actuaries “The educational task is huge, and it’s not just with the customers; it’s with our agents also. t would say to all of you that if you think that you don’t have any customers or any agents who fail to understand what a nonguaranteed illustration really means, you’re kidding yourself.”  MR. Walter MILLER <Prudential>
1991, Illustrations, Society of Actuaries “As a final comment, I want to clarify that I am just an agent who entered this business nearly 20 years ago. I had then, and I have today, a great sense of pride and professionalism in what I do for, and not to, my clients. I sincerely believe we have a flawed instrument in today’s sales illustrations. It is neither a reason to condemn our industry nor pretend our industry should have been immune to change, especially with the economic realities of the past few years. But we did not communicate the impact of change as well as we should have, especially the impact of change on the numbers we used in our sales illustrations. So our challenge is to learn and to respond. I sincerely believe it’s a shared responsibility by all of us – agents, the actuarial profession, company leadership, regulators and even the consumer. Our biggest mistake would be to delay. I don’t believe the consumer will tolerate or forgive us, let alone the regulators, if we do nothing.”    Robert Nelson, NALU (now NAIFA)   
1993, SALES ILLUSTRATIONS – WE CAN’T LIVE WITH THEM, BUT WE CAN’T LIVE WITHOUT THEM!, Society of Actuaries
  1. Grading
    • 1993-3 “Tony Higgins (N.C.) asked the working group to consider projections into the future for only a few years of the non-guaranteed elements, and then projections further into the future of standardized assumptions or guarantees.”
“Mr. Nelson <NALU> stated that, in his opinion, consumers can not differentiate between illustrations that show what is possible and improvements that are probably not possible.”
1994-3, NAIC Proceedings “Commissioner Wilcox responded that the definition of illustration included more than a ledger.”
1994-3, NAIC Proceedings

MS. LAURA M. MOCKRIDGE: I have worked for other insurance companies dealing with illustrations and this phenomena of being involved is very new. At my prior company I was in charge of looking at other companies’ illustrations.

I called the company and their actuaries didn’t know what was in the illustrations. It was the marketing department. This
is new that the actuaries are involved. 1995 – CURRENT DEVELOPMENTS SURROUNDING REGULATIONS
AND STANDARDS OF LIFE AND ANNUITY PRODUCTS, Society of Actuaries
Illustration Q&A
199x, NAIC Proceedings

NOW

NAIC Working Groups

Birney Birnbaum

Richard Wicka

Society of Actuaries
1995 – Sales Illustrations
Problems and Solutions
Task Force Report
We Can’t Live with or without them