NAIC Proposes Updates to Annuity Illustrations for Consumer Clarity

The National Association of Insurance Commissioners (NAIC) is moving closer to updating model laws for annuity illustrations, aiming to curb the influence of historical investment returns that have in some cases showcased up to 27% returns.

The NAIC's working group on life insurance and annuities recently reviewed strategies to present indexed product performance more consistently to consumers. During their discussions, Birny Birnbaum, Executive Director of the Center for Economic Justice, stressed the potential for misleading illustrations based on hypothetical scenarios of past returns. "Permitting insurers to use such scenarios allows manipulation of the illustrations," Birnbaum argued, highlighting the risks involved. The group explored adopting fixed scenarios for indexed returns, akin to those used by the Securities and Exchange Commission for variable products, a move endorsed by industry experts like Bill Carmello, Chief Life Actuary of the New York State Department of Financial Services.

In the upcoming draft proposal, the working group intends to implement prescribed index scenarios, with the aim of enhancing consumer education. Oregon regulator Joshua Blakely emphasized that prioritizing fixed return scenarios can aid in educating consumers. However, consumer advocates like Bonnie Burns from California Health Advocates caution that any push for standardization should not come at the cost of clarity. The current discussions highlight the necessity of an approach that demonstrates how products operate during specific crediting periods, rather than projecting long-term outcomes. In response to these deliberations, the group will soon invite detailed proposals, with the next meeting scheduled in two to three months to refine and pinpoint solutions.