In the past 5 years, the National Association of Insurance Commissioners (NAIC) has stepped into the world of Indexed Universal Life Insurance with the goal of regulating the wild illustrative disparities between competing products. In 2015, regulators introduced Actuarial Guideline 49 (AG 49) in an effort to reign in illustrations where interest credited was concerned in order to level the playing field and provide the consumer with a more accurate picture of how the IUL policies could be expected to perform. In an effort to stay compliant with AG 49 but still make their products appear more robust than their competitors, carriers found new ways to ‘juice’ their illustrations by introducing bonus multipliers thereby boosting the performance of their illustrations. This essentially allowed carriers to abide by AG 49 where the maximum growth rate was set while also adding the bonus multiplier on top of that rate in their illustrations. This is to say that while the intention of AG 49 was pure, the result of its implementation created more or less the same problem regarding illustrations that could be tweaked to appear more valuable than the consumer could reasonably expect. Yet again, the playing field was uneven, and comparing one carrier’s illustration to another was not consistent.
Back to the Drawing Board: Enter AG 49-A on November 25th, 2020
Since bonus multipliers were relatively new at the time the original AG 49 rolled out, they were not included in the regulation. Carriers took advantage of this omission to continue to add perceived value to their illustrations, touting the potential while ignoring some of the negative aspects such as charges and fees associated with some bonus multipliers. The NAIC met again to amend the original AG 49 to include these new tools and attempt once again to simplify the illustration component and infuse a degree of transparency to the process. The revised regulation, AG 49-A was agreed upon and is set to activate on November 25th, 2020.
AG 49-A does Not Eliminate Multipliers but Removes them from Illustrations
With the new regulation, carriers will no longer be able to illustrate the potential impacts of bonus multipliers in their illustrations, effectively lowering the growth rate on these illustrations. AG 49-A does not prohibit these tools from the policy. Additionally, the loan crediting rate was lowered from 1% to 0.5%.
What Does AG 49-A mean for Agents?
Rocky Mountain Insurance Network wants to help agents stay on top of these dramatic changes to product illustrations. A few companies have made product and/or illustrative changes to be compliant with AG49A. However, the illustrations do not have to be compliant until November 25, 2020. The problem that poses is if you are working on a case and comparing company A to B to C, you’re comparing apples to oranges. For example, John Hancock has changed their illustration process to be compliant already while we are told PAC will not have their compliant illustrations until November 25. So if you are comparing PAC to Hancock, the comparison is invalid as PAC is still illustrating all the multiplier scenarios that were the driving force behind the revision of AG49 and indeed the Pac lawsuit in California. We are keeping track of those companies that have made their illustration systems compliant and those that have not. If you are working on an IUL case, call us and we will be happy to share our updated information with you.
The Future of Product Illustrations
The original AG 49 produced change and innovation in the marketplace as carriers sought to find new avenues to increase the performance of their product illustrations. It is likely that the new amendment limiting the illustration of those innovations will necessitate more change. Rocky Mountain Insurance Network prides itself on keeping agents up to date and informed so that they can continue to sell ethically and with confidence. Once every company has come into compliance with AG 49-A, the illustration landscape will likely settle down. How long that lasts is anyone’s guess. Rocky Mountain Insurance Network is committed to helping you navigate these complicated changes to our industry every step of the way.