A proposal before regulators that would give life insurers the discretion to terminate guaranteed living benefit riders if they are sold by a consumer to an institutional investor will receive further scrutiny because of a controversial debate weighing consumer property rights against the cost of those benefits.
The decision made this afternoon by the Management Committee of the Interstate Insurance Product Regulation Commission, Washington, would ask for further input by the IIPRC’s Product Standards Committee without actually sending it back to the Committee for more work. The IIPRC is the entity that is a single point of filing for life insurance products. In order to facilitate filing, the Commission is currently in the process of developing product standards for product filings. The IIPRC was developed and is affiliated with the National Association of Insurance Commissioners, Kansas City, Mo.
The Management Committee has already asked an actuarial subgroup to look at a paper submitted by the American Academy of Actuaries, Washington, on the issue. The subgroup work was part of the discussion on a conference call today.
The three proposed standards create product filing requirements for guaranteed living benefits for individual deferred non-variable annuities; individual deferred variable annuities; and guaranteed minimum death benefits for individual deferred annuities.
Commissioners on the committee have been paying particular attention to the public policy issue of a consumer’s contract rights, particularly the right to sell a contract, while keeping in mind that exercise of that right could result in an increase in the cost of that feature.
Ohio Director Mary Jo Hudson, chair of the Management Committee as well as Oklahoma Insurance Commissioner Kim Holland, NAIC Secretary-Treasurer, and Wisconsin Commissioner Sean Dilweg took great care to open comment up so that both sides of the issue could be examined. There was general agreement that the issue should be reviewed further before final action is taken.
As part of that examination, the Management Committee heard the findings of an IIPRC actuarial subgroup. The subgroup agreed with an Academy report that if riders with these guarantees are sold to institutional investors, there would be additional concentrated risk for companies that would make the guarantees more expensive. An increase in cost could affect consumer choice, the subgroup found.
When asked by Miriam Krol of the American Council of Life Insurers, Washington, whether the subgroup had examined a part of the Academy report that addressed how consumers who planned to sell the feature would be favored and those who planned to retain the feature for personal use would be discriminated against, Peter Weber, representing the subgroup responded that the issue had been vetted. The Academy pointed out that if the cost increased, those who planned to sell the rider would still benefit, while those who planned to retain the benefit would be subsidizing that activity. Weber answered that that part of the Academy paper had not generated much discussion.
John MacBain of Actuarial Resources Corporation, Clearwater, Fla., consulting for the life insurance industry, said that the proposed guidelines would not prohibit a change of ownership if the change was to a trust or to a family member. The rider would only terminate if it was transferred to an institutional buyer, he explained.
Maureen Adolph, representing Prudential Financial, Newark, N.J., said that companies would have the option of whether to write a termination provision into annuity contract riders. She questioned whether consumers buying the feature for purely personal reasons should pay for the right to sell a contract and stated that it opens up the market to “inappropriate” use of the provision by those who really only intended to sell it.
Brian Staples, president of RIGHT LLC, Versailles, Ky., representing the Life Insurance Settlement Association, Orlando, Fla., said that “if the features are performing as they should be performing there will not be a need to bring it to the secondary market.” And, he noted that the contract has to be approved by the insurance company which should have a review process in place to ensure that it is a legitimate transaction and the agent is acting properly. The life insurer should be making sure that “the agent involved is not part of a stealth project.” This is a public policy issue, he said.
John Kissling, chief deputy commissioner of the Indiana insurance department said that the conditions under which a life insurance contract is purchased can change and that in a free market a consumer should be able to use the policy purchased in a way that is beneficial to that consumer. “If companies want to be competitive, they should be competitive in purchasing the contract” and offer something comparable to what the market offers,” he suggested.
Prudential's Adolph responded that what was being described was a life settlement and not riders associated with annuities.