A distributor says people are borrowing money to buy big
policies based on unrealistic performance forecasts.
The National
Association of Insurance Commissioners (NAIC) is continuing to offer a
quarantine-friendly alternative to wrestling and football, for people who miss
wrestling and football: a fight over proposed changes to indexed universal life
(IUL) insurance illustration standards.
Members of the
NAIC’s Life Insurance and Annuities Committee have voted unanimously to approve
a proposed update to Actuarial Guideline 49, which sets the rules for showing
how an IUL policy might work in the future.
Members of the full
NAIC could vote on final approval for the proposal as early as Aug. 11, during
one of the web sessions that’s part of the NAIC’s summer national meeting.
But the proposal
continues to face emotional opposition from some of the best-known U.S. life insurance
distribution specialists, including many people who have been quoted in
articles on ThinkAdvisor and in related publications for years, and who have
had many articles of their own published by ThinkAdvisor and related advisors.
The list of bitter
opponents of the proposed AG 49 includes Birny Birnbaum,
of the Centers for Economic Justice.
The opponents list
also includes Larry Rybka, the
chief executive officer of Valmark Financial Group; Mike Brohawn, president
of Your Life Insurance Solution; Stephen Leimberg, publisher
of Leimberg Information Services Inc.; Ben Baldwin Jr.;
and Joseph Belth, a
professor emeritus at Indiana University.
Words
An IUL policy is a
life insurance policy with returns tied to the performance of a designated
investment indicators, or set of indicators, such as the S&P 500 stock
index.
Wink Inc. says
insurers generated about $527 million from the sale of IUL and indexed whole
life in the first quarter.
An
illustration is a document that shows how a product might perform in the
future, in specified conditions.
The History
The NAIC tried to
address concerns about lack of realism in IUL illustrations in 2015, when it
approved AG 49.
Some IUL supporters
worried AG 49 would be so strict that it would hurt IUL sales.
But indexed life
sales have increased from $479 million in the third quarter of 2015, before AG
49 came along.
The ACLI contends
that its proposal would help address regulators’ concerns about illustration
realism, and be relatively simple for life insurers to adopt, and for state
regulators to implement.
The ACLI has stuck
in its comments mainly to focusing on how specific provisions in its proposal
might work, and how those provisions could be adjusted.
How Rybka, Leimberg
and Other ACLI Proposal Critics See Things
Rybka and other
critics have argued that abusive use of illustrations continues.
Rybka writes, in an
analysis with the title, “How to Retire in the Magical Retirement Income Castle
in the Clouds,” the sellers are magnifying the problems with the illustrations,
by persuading investors to take out big loans to pay for IUL policies.
Rybka says he
personally saw three colleagues show how they used illustrations to persuade
clients to borrow large sums to pay for IUL policies.
“The proposals
showed that the loans would be paid back using projected policy cash values and
have plenty remaining in the policy to provide a lifetime income of hundreds of
thousands of dollars a year to the policyholder and a multi-million-dollar
death benefit at the end,” Rybka writes. “Each presentation proposed the
clients borrow money from major commercial banks who were willing to lend $2
[million] to $3.5 million to each client over five to seven years to purchase
these policies. These proposals are not outliers but part of massive sales
efforts by some insurance companies and banks to push products that may be good
for them, but carry significant risk for the client.”
One criticism
Rybka, Leimberg, Birnbaum and others have of the ACLI proposal is that it would
let life insurers use some factors not disclosed in the policies in the illustrations.
Rybka, Leimberg,
Baldwin, Birnbaum and others are calling for the NAIC to go with an alternative
“independent proposal” that would be simpler than the ACLI proposal and would
let illustrations include on the effects of factors disclosed in the policies.
No comments:
Post a Comment