Guidance on Illustrations published by NYSID
The NYSID recently published "Guidance for Life Insurance Policy Illustrations." It begins with the statement that "It has come to the Department's attention that there may be some confusion between the NAIC requirements for Life Insurance Policy Illustrations and those required by New York's Statutes and Regulations." The guidance goes on to indicate that some of the Department's concern is based on companies' reliance on the Q and As that were published with respect to the model illustration regulation. Much of the guidance is a "side-by-side" comparison between the model and NY's Reg 74, but because the provisions do not line up and the formatting is different, it can be a bit confusing to follow when viewed or printed from the website. I found it helpful to cut and paste the two regulations to create my own spreadsheet that lines up more clearly and has columns of equal size. The Department's points with respect to the differences they seek to highlight are more obvious to me laid out in this manner. Upon request, I would be happy to provide this document.
For those who have experienced post-approval reviews of life products, it will come as no surprise that illustration issues are the subject of Department scrutiny. Illustrations seem to now be a standard post-approval area of inquiry, and illustration issues have even been prominent in recent prior approval submissions as well. One area that this posted guidance does not address, but which has repeatedly come up on post-approval reviews, is the effort to apply the Reg 74 standards discussed in this guidance - particularly those related to illustration of non-guaranteed elements - to variable policies when the illustration is used in lieu of a preliminary information/policy summary. While this guidance is helpful, having a similar document that provides an analysis of which provisions of Reg 74 the Department has determined it has the legal authority to apply to variable policies - and under what circumstances - would be even more so!
Some specific areas are identified as problems in the Guidance:
--Computer-displayed illustrations, and the NY position that "regardless of the format or method by which the illustration was shown to the applicant, a copy of the illustration signed by both the applicant and company's authorized representatives must be furnished to the applicant at the time of application." The guidance concludes that delay to policy delivery is specifically not permitted by Reg 74.
--Illustration of non-guaranteed persistency bonuses or reductions in charges after the first policy year. Paraphrasing, the key difference is that Reg 74 states to illustrate these non-guaranteed bonuses or reductions, they must be guaranteed in the policy. By contrast, the model illustration regulation requires only that the illustration not be misleading on this point or have the capacity or tendency to mislead with respect to the non-guaranteed nature of these elements.
--Basic illustrations. The guidance advises that there are additional requirements for basic illustrations that do not appear in the model in particular situations and types of policies.
--Record retention. The guidance indicates that the periods differ in NY's regulation.
--Content of annual report. In some circumstances, the guidance reminds that the NY reg mandates noting in the annual report the option for a policy summary after policy issuance.
