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Society Releases VL Illustration Questionnaire

DALLAS--The American Society of CLU & ChFC has released a Variable Life Insurance Illustration Questionnaire (VIQ), the latest in its series of documents designed to aid in disclosure of the assumptions underlying life insurance illustrations.

The VIQ, which is designed to help companies educate their agents, contains 27 questions on the nonguaranteed and guaranteed elements, except investments, of a variable life policy that can affect the product's future performance. The three main elements are mortality, expenses and persistency.

The VIQ, however, does not ask for proprietary pricing information or numerical responses of any kind, according to the Society.

Information on the VIQ can be shared with the clients to help them understand the risks inherent in the products, according to Curtis Ford, 1996-1997 president of the Society, who advised that the VIQ not be shown to clients without gaining the permission of the agent's broker/dealer.

Much of the information required to complete the VIQ, however, is contained in the prospectus that must be given to the buyer when purchasing a variable life policy. The Society said the VIQ is designed to "reorganize" this information for disclosure and presentation to agents.

As with the Society's other disclosure documents, the Illustration Questionnaire (IQ) and the Replacement Questionnaire (RQ), insurers participate in completing all or part of the questionnaire on a voluntary basis. So far, 99 companies, representing 72 percent of the assets of the life industry, have completed the IQ, while only six insurers have endorsed the RQ.

"Replacement has a more competitive aspect so we're getting less cooperation from companies," Mr. Ford told National Underwriter.

Richard Weber, chairman of the Society's Illustration Task Force, said one reason the Society came out with the VIQ is that the National Association of Insurance Commissioners' model regulation on illustrations, which is to take effect on Jan. 1, 1997, does not include variable life.

"The biggest dilemma raised by the NAIC's model regulations is that many agents and clients may mistakenly choose to assume that the illustration is credible on future values," Mr. Weber, a consultant in Tampa, Fla., said, adding that "agents must be educated about the inherent underlying numbers, especially long-term projections."

When asked about the possibility of the NAIC's mandating the IQ, he said, "Frankly, I don't seek that," adding that "it's more important to distinguish between those companies who do disclose (on the IQ) and those that don't."

Asked if he thought the Society's illustration questionnaires would fit in with the American Council of Life Insurance's code and principles of ethical conduct for its member companies, he said: "From what I know, it sounds like they would be an ideal part of the process because it would help (home office) actuarial and marketing to understand the problems between real world results as contrasted with the illustration, which is a single-dimensional projection of assumptions too many years into the future to be useful."

Reproduced from National Underwriter Life & Health/Financial Services Edition, October, 21 1996.
Copyright (C) 1996 by The National Underwriter Company in the serial publication.
All rights reserved.
Copyright in this article as an independent work may be held by the author.

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