1987-1

1987-1

FLEX DI POLICY

NAIC
Education Research and Training <EXl l Task Force meeting, but from Boston I went to London and just returned to
the office. The attached list is not complete; it simply represents suggestions that were made to me informally at the
Commissioners’ school and in discussions with the NAIC staff. To: NAIC Life and Health Actuarial Task Force
Re: AAA Universal Life Task Force – Preliminary Report Universal Life Model Regulation – Concerns with Valuation and Nonforfeiture Provisions and Criteria for Evaluating
Proposed Revisions NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
REHABILITATORS AND LIQUIDATORS (EX4) TASK FORCE
NAIC CONTACT PERSON REPORT

6. Report of the Market Conduct and Consumer Affairs (EX3) Subcommittee

•  Mr. Synnott further reported that the Market Conduct Surveillance Task Force has referred the (proposed) Model Regulation on Life Insurance and Annuities to the Life Insurance (A) Committee for comment.
• He noted that amendments to the Rules Governing the Advertising of Life Insurance had been offered for exposure.

REPORT OF THE
MARKET CONDUCT AND CONSUMER AFFAIRS (EX3)
ADVISORY COMMI’ITEE
December 7, 1986
Life Insurance Products Coupled With Annuities (140) – Disclosure Requirements. Section V contains an abundance of new disclosure material which appears to duplicate, at
least in part, existing model regulations. This list would include, but is not necessarily limited to, the following models:
Universal Life Insurance Model Regulation; Life Insurance Disclosure Model Regulation; Model Annuity and Deposit
Fund Disclosure Regulation. Furthermore, the Life Insurance (A) Committee disclosure projects, such as those assigned
to the Yield Index and the Indexed Products other than Universal Life Advisory Committees, are ongoing. In addition,
we have learned of a proposal of the American Academy of Actuaries to amend the advertising rules that should be
considered. Suffice it to say that a charge concerning revised life advertising rules and innovative product disclosure
would be more appropriate and suited for the Life Insurance (A) Committee. In this way, duplication of effort can be
avoided and a quality work product ensured. Dear Pete:
********
ATTACHMENT FIVE-C
State of Illinois
Department of Insurance
Office of the Deputy Director
Consumer Division
Springfield, Illinois 62767
(217) 782-4395
August 12, 1986
Dear Pete, As you may recall, you assigned Illinois to take a look at the rules governing the advertising of life insurance. Attached is our  efforts along this line. 3. Specific definitions, prohibitions and disclosure requirements to address marketing issues unique to universal life
products; Rules Governing The Advertising Of Life Insurance
At the June NAIC meeting in Boston, the Task Force announced that it was charged with the review of the Rules by
the NAIC President Josephine Driscoll (Ore.). The Oregon Division believed that revisions may be necessary to keep
pace with the new generation of products.
At the September NAIC meeting in Des Moines, the Task Force reported that it.s Subgroup had drafted revised Model
Rules which would be circulated for possible reception as an exposure draft at the December NAIC meeting. The Advisory
Committee subsequently received the draft rules for review and comment. It met on Nov. 19 and again on Dec. 7 to
discuss the draft rules and prepare this report.
The Advisory Committee appreciates the need to review the existing Model Rules in view of recent product innovations,
but the draft Rules appear to go beyond the Task Force charge in several respects. Furthermore, the Advisory Committee
believes that the charge was misdirected. This issue should be referred to the Life Insurance (A) Committee.
Definitions. Section II(l) expands the definition of “Advertisement” significantly. The “Insurance Producer” concept is
discussed below. The term “third parties” is gratuitously added to Section Il(l)(b) without being defined. Unless the need
for this addition can be demonstrated and the term clearly defined, “third parties” should be deleted.
Section 11(3) defines the concept of “Insurance Producer” as an all·inclusive, generic label for individuals involved in a
broad spectrum of insurance transaction activities. The definition could include individuals who are not authorized or
appointed to act on behalf of the insurer.
When the existing rules were adopted in 1975 at the June NAIC meeting, concern was expressed regarding the scope
of insurer responsibility. Farmers Insurance Group proposed amendments that would limit the Section II definition of
“Advertising” to that which was authorized or used by the company. Farmers also wanted to limit Section III(2) respon·
sibility: “All such advertisements, regardless of by whom written, created, designed, or presented, shall be the responsibility
of the insurer after being called to its attention.” (See NAIC Proc. 1975, Vol. IL p.332.) The Farmers proposal
was rejected, but it is clear that agent/solicitor/broker appointment by the insurer was assumed when the Rules were
adopted by the NAIC.
Consequently, there must be some ascertainable standard for determining the scope of the insurer’s responsibility and
corresponding liability. If the concept of”Insurance Producer” is deemed essential to and within the ambit of the charge,
which seems doubtful, the definition should be at least qualified by adding “insurer-appointed” immediately preceding
the word “individual” in the definition.
The Market Conduct Surveillance Task Force also should consider the current work of its sister task force. The Agents
Licensing Study Task Force and its Advisory Committee will consider producer definitions as one of its projects. It would
seem more appropriate for that Task Force and Advisory Committee to include the definition of “Insurance Producer”
in its work product. If the definition is included in a model licensing statute, it would not need to be qualified in the
manner recommended above. But when it is proposed for life advertising rules, it automatically impacts the scope of
insurer responsibility; hence, the need for the recommended qualification.
Disclosure Requirements. Section V contains an abundance of new disclosure material which appears to duplicate, at
least in part, existing model regulations. This list would include, but is not necessarily limited to, the following models:
Universal Life Insurance Model Regulation; Life Insurance Disclosure Model Regulation; Model Annuity and Deposit
Fund Disclosure Regulation. Furthermore, the Life Insurance (A) Committee disclosure projects, such as those assigned
to the Yield Index and the Indexed Products other than Universal Life Advisory Committees, are ongoing. In addition,
we have learned of a proposal of the American Academy of Actuaries to amend the advertising rules that should be
considered. Suffice it to say that a charge concerning revised life advertising rules and innovative product disclosure
would be more appropriate and suited for the Life Insurance (A) Committee. In this way, duplication of effort can be
avoided and a quality work product ensured.
Section V 12(b) lists specific activities that allegedly constitute the activities of a “financial planner,” “investment
advisor,” “financial consultant” or “financial counselor.” Although the first sentence of this paragraph properly prohibits
use of these terms unless the insurance producer is actually engaged in these activities, this prohibition is already
contained in the Life Insurance Disclosure Model Regulation. Furthermore, the draft regulation is not the proper vehicle
for regulating the undefined activities of a “financial planner,” “investment adviser,” “financial consultant” or “financial
counselor.” The activities of these specialists are already regulated by various state and federal laws, so there is no need
to establish dual regulation of this activity.
Enforcement Procedures. Section IX(2) expands the existing “capacity or tendency to mislead or deceive” standard found
in Section IV(l). Prior review or approval of advertising should not turn on whether the Commissioner “finds that it
may be in the best interests of the public.” (Emphasis added.) The latter test is far too subjective and whimsical. We
also believe that it violates Section 12 of the Unfair Trade Practices Act. If Section IX(2) is deemed lawful, necessary
and within the Task Force charge, which is doubtful, it should be revised as follows:
If the Commissioner determines that an advertisement has the capacity or tendency to mislead or deceive
the public, he may require particular insurers or insurance producers to submit all or any part of their
advertising material to the Commissioner for review or for approval prior to use.
NAIC Proceedings – 1987 Vol. I 141
In summary, we believe that the expanded definition of “Advertisement” goes beyond the charge. The undefined term
”third parties” should be deleted. The term “Insurance Producer,” although defined, would add new and unlimited
dimensions to insurer responsibility. At the very least, the definition of producer should be limited to “insurer-appointed”
producers. But it would seem premature to address this issue before the Agents Licensing Study Task Force/ Advisory
Committee has completed its work. The life advertising rules should not attempt to regulate the act.ivities of the “financial
planner,” et al category. The prior review or approval standard in Section IX(2) should be consistent with the unfair
tra.de practices standard found in Section N(l). A different, more subjective standard would not only exceed the charge,
but also would violate Section 12 of the Unfair Trade Practices Act. Finally, but most importantly, the entire charge
should be referred to the Life Insurance (A) Committee for the same reasons expressed under the life/annuity discussion:
managerial efficiency, avoidance of duplication, expertise and work product quality.