NAIC Annuity Disclosure Working Group Meeting Report: May 14

On Thursday, May 14, 2009, the National Association of Insurance Commissioners (“NAIC”) Annuity Disclosure Working Group (“Working Group”) of the Life Insurance and Annuities Committee met to discuss options for the disclosure of guaranty fund coverage to consumers.  To view the meeting agenda, click here.

Chairman Jim Mumford, First Deputy Commissioner of the Iowa Insurance Division, outlined the following options available for consideration by the Working Group:

1. Require no disclosure;
2. Adopt a disclosure template that is more consumer-friendly and informational than those currently used to comply with Section 19 of the Life and Health Guaranty Association Model Act (“Model Act”);
3. Develop and require separate coverage disclosure templates for each product type; or
4. Require both options 2 and 3.

To view the template created by the American Council of Life Insurers (“ACLI”) and National Organization of Life and Health Insurance Guaranty Associations (“NOLHGA”), click here.  To view Section 19 of the Model Act, click here.

If a more consumer-friendly and informational template were to be adopted (like the ACLI/NOLHGA template in option 2), a new section would be added to the Annuity Disclosure Model Regulation (“Model Regulation”) that would read:  “If a carrier provides at the time of sale the Guaranty Fund disclosure based on the template in Appendix B, it will have provided the necessary disclosure to the purchaser concerning guaranty fund coverage.” 

According to Chairman Mumford, if the option 2 template was adopted, it would serve as adequate disclosure under both the Model Regulation and Model Act requirements under Sections 19B and C.

Chairman Mumford asked the Working Group whether any additional discussion was needed regarding guaranty fund coverage disclosure. 

Wisconsin Deputy Commissioner of Insurance Kim Shaul asserted that her state’s system is adequate and no additional disclosure is needed.  Ms. Shaul expressed concern that if the disclosure template were required, it may lead companies to use guaranty fund back-up as a selling point for their policies.

Chairman Mumford stated that guaranty fund disclosure, whether made before or after completion of an annuity sale, would help alleviate consumer fears regarding company solvency, especially given the current financial environment.

Minnesota Department of Commerce Chief Examiner for Market Conduct Paul Hanson asserted that his state requires disclosure to be made at the time of application.  Minnesota also has advertising guidelines barring the use guaranty fund coverage as an inducement of sale.  Mr. Hanson said he supported using the option 2 template, but would add language further clarifying the coverage amounts available from the guaranty fund for both fixed and variable annuities.

A representative from NOLHGA echoed Ms. Shaul’s concern that if guaranty fund coverage disclosure is made prior to delivery of the signed policy to consumers, a moral hazard would be created because agents would be more likely to use guaranty fund coverage as a selling point for their policies.

Gail Keren, Deputy Chief of the New York Life Insurance Bureau stated that New York already has a prohibition against guaranty fund disclosure in place, so she would be against adoption of the template.

Mary Ellen Breault, Connecticut Director of Life and Health Insurance, said there is a fine line between answering consumers’ questions about guaranty funds and using that information to influence the sale of annuities.  Connecticut currently has no requirement for disclosure, even upon delivery of the signed insurance policy.

A consumer group representative stated that consumers are interested in hearing about guaranty fund coverage, and that prohibiting disclosure seems to go against consumers’ rights.

Chairman Mumford indicated that producer groups like NAVA and the Association for Insured Retirement Solutions are in favor of disclosure.

A representative from New York Life Insurance Company stated that it is unrealistic to think giving consumers disclosure information at the time of application is different than inducement; a representative from Massachusetts Mutual Life Insurance Company concurred.

Steve Ostlund from the Alabama Department of Insurance stated that, given the volume of documents involved with annuity policies, consumers are unlikely to read the disclosure notice if it is provided with the policy documents.

A representative from the ACLI reminded Working Group members that the purpose of the call was not to discuss the timing of disclosure, which is already set forth in the Model Act.

Chairman Mumford suggested that, since no consensus could be reached between Working Group members regarding whether to require disclosure, the option 2 template would be discussed further during the NAIC Summer 2009 National Meeting, in Minnesota.  Chairman Mumford requested that any comments or questions regarding the template be provided to the Working Group’s NAIC Staff member, Jolie Matthews (jmatthew@naic.org), by Friday, June 5.

The meeting was then adjourned.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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