New York Regulators Probe Indexed Universal Life Insurance Marketing- Bestwire
September 23, 2014 by Thomas Harman
ALBANY, N.Y. – The New York Department of Financial Services is investigating the marketing of indexed universal life insurance products, regarded as one of the fastest-growing in the life insurance sector.
The letter sent to insurers said DFS “is seeking information from authorized life insurers regarding indexed universal life insurance and the illustrations used to market those products. The department’s concern is that indexed universal life insurance products be presented to prospective purchasers in an appropriate manner with respect to the product’s future performance.”
The letter asked the insurers whether they sell any universal life insurance products where contract values are based on an index change. If so, they are asked to provide DFS-approved policy form numbers of each product, the index options available and to indicate whether they are available for new sales or the period during which they were issued. Also, the insurers were asked to provide a recent illustration for each IUL products sold in the state and a copy of preliminary information and a policy summary for policies sold without an illustration.
DFS also wants insurers to provide the total face amount issued and premiums received on new sales of IUL insurance between 2012-2014 for New York and nationwide sales, as well as insurers’ percentage of IUL sales in relation to overall life insurance sales in each case.
Brian Fectel, founder of the Purchase, New York-based Breadwinners’ Insurance, said he saw little validity behind the DFS effort, which he said appears to be focused on rates of return that are being marketed by companies. “I will be flabbergasted if any company illustrates a rate that cannot be substantiated,” he told Best’s News Service. “Maybe somebody’s out there showing a 15% interest rate and they can’t justify it … It’s not what’s illustrated, it’s what the performance [of the product] will be.”
Sheryl Moore, president and chief executive officer at Moore Market Intelligence, told Best’s News Service that the DFS investigation may have been prompted by work in the National Association of Insurance Commissioners to update a model law covering illustrations.
The American Council of Life Insurers is part of discussions at the NAIC that illustrate an industry split on IUL policy illustration. Several major life insurers who do not sell IUL policies appear to have the same concerns as the DFS possibly exaggerating the policies’ returns. The NAIC life actuarial task force is considering competing proposals that would update the NAIC’s Life Insurance Illustrations Model Regulation, whose passage by the NAIC in 1993 predated the development of IUL products. The ACLI offered an initial policy that was rejected by several large companies, MetLife, New York Life, Northwestern Mutual and OneAmerica. According to the ACLI, those companies do not sell IUL policies.
The ACLI declined comment on the DFS letter. The Pacific Life Insurance Co., among the largest sellers of IULs for the past decade, and Northwestern Mutual also offered no comment.
The IUL products are doing a significant business for life insurers, according to LIMRA’s latest data. Sales were slow for individual life insurance in the United States during the second quarter of 2014. LIMRA reported that total sales, based on new annualized premium increased 1%. However, IUL premium improved 14% in the second quarter, resulting in a 13% increase for the first half of this year, LIMRA said. The IUL line represented 17% of overall individual life premium during the quarter and 42% of total UL premium.