Date:September 15, 1997
To:All Insurers Authorized to Write Life Insurance Business
From:Josephine W. Musser, Commissioner of Insurance
Subject:Section Ins 2.17, Wis. Adm. Code--Life Illustrations

This technical bulletin summarizes the requirements of s. Ins 2.17, Wis. Adm. Code, regarding the illustration of life insurance policies. The rule, which is effective January 1, 1998, is similar to the NAIC Life Illustrations Model Regulation, except as noted in section VI, below.

Section I-Purpose, Scope, and Definitions
Section II-Illustration Requirements
Section III-Annual Report to Policyholders
Section IV-Reporting Requirements
Section V-New Form Filing Submissions
Section VI-Deviations From the NAIC Life Illustrations Model Regulation
Section VII-The Rule’s Effect on Existing Regulations
Section VIII-Other Sources of Information
Section IX-OCI Contact Persons

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I. Purpose, Scope, and Definitions

Purpose

The purpose of the rule is to protect consumers by making illustrations easier for consumers to understand and to ensure that policy illustrations are not misleading [refer to s. Ins 2.17 (1), Wis. Adm. Code].

Scope

The rule applies to all group and individual life insurance policies and certificates [refer to s. Ins 2.17 (2), Wis. Adm. Code] except:

  • Variable life insurance
  • Individual and group annuity contracts
  • Credit life insurance
  • Life insurance policies with no illustrated death benefits on any individual exceeding $10,000

Definitions

The definitions in the rule are similar to those in the NAIC Life Illustrations Model Regulation except that the definitions in the OCI version have been alphabetized and in some cases, revised to eliminate subdivisions within paragraphs [refer to s. Ins 2.17 (3), Wis. Adm. Code].

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II. Illustration Requirements

Policies to be Illustrated [refer to s. Ins 2.17 (4), Wis. Adm. Code]

The rule requires insurers to identify whether a policy form will be marketed with an illustration. If the policy form is marketed with an illustration, the illustration must comply with the requirements of s. Ins 2.17, Wis. Adm. Code. If the policy form will not be marketed with an illustration, the insurer is prohibited from using an illustration with the policy form for the first policy year. There are two exceptions to the above-noted requirements:

  1. A basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals. In such cases, the illustration furnished may either be an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.
  2. With respect to non-term group life insurance coverage, insurers must provide a quotation, as described in s. Ins 2.17 (4) (d), Wis. Adm. Code, with the enrollment materials. An insurer is only required to provide a basic illustration to enrollees who enroll for more than the minimum premium necessary to provide pure death benefit protection, and to each enrollee who requests an illustration.

General Rules and Prohibitions [refer to s. Ins 2.17 (5), Wis. Adm. Code]

All illustrations must contain the following [refer to s. Ins 2.17 (5) (a), Wis. Adm. Code]:

  • The words "life insurance illustration"
  • Name of the insurer
  • Name and address of the insurer’s intermediary agent or authorized representative
  • Name, age, and sex of proposed insured, except where a composite illustration is permitted by the rule under s. Ins 2.17 (4) (c), Wis. Adm. Code
  • Underwriting or rating classification upon which the illustration is based
  • Generic name of the policy, the insurer’s product name (if different than the generic name), and the policy form number
  • Initial death benefit
  • Dividend option election or application of nonguaranteed elements, if applicable

Insurers and intermediary agents or authorized representatives shall not [refer to s. Ins 2.17 (5) (b) through (d), Wis. Adm. Code]:

  • Represent the policy as anything but life insurance
  • Use or describe nonguaranteed elements in a manner that is misleading or has the capacity or tendency to mislead
  • State or imply that payment of a nonguaranteed amount is guaranteed
  • Use an illustration that does not comply with s. Ins 2.17, Wis. Adm. Code
  • Use an illustration that at any policy duration depicts results more favorable than that produced by the illustrated scale of the insurer whose policy is being illustrated
  • Provide an applicant with an incomplete illustration
  • Represent that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless such representation is fact
  • Use the terms "vanish," "vanishing premium," or similar language which implies that a policy will become paid up based on the use of nonguaranteed elements to pay premiums
  • Use an illustration that is "lapse-supported" unless illustrating a policy that can never develop nonforfeiture values
  • Use an illustration that is not "self-supporting"
  • Illustrate an interest rate which is greater than the earned interest rate underlying the disciplined current scale

Additionally, when determining the disciplined current scale, an insurer must use the standards established by the Actuarial Standards Board, which meet the requirements of subsection (5) (d), of the rule.

Standards for Basic Illustrations [refer to s. Ins 2.17 (6), Wis. Adm. Code]

The rule defines a basic illustration as "...a ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and nonguaranteed elements" [refer to s. Ins 2.17 (3) (b), Wis. Adm. Code].

A basic illustration shall conform with the following:

  • Include the date the illustration was prepared.
  • Each page (including explanatory notes or pages) must be numbered and show the relationship of the page to the total number of pages in the illustration (i.e., Page 3 of 7).
  • The assumed dates of payment receipt and benefit payout within a policy year shall be clearly identified.
  • The age of the proposed insured shall be the issue age plus the number of years the policy is assumed to have been in force, if the age is shown in the tabular detail.
  • The assumed payments shown on the illustration shall be identified as premium outlay or contract premium, as applicable. If a policy does not require a specific contract premium, the assumed payment illustrated shall be identified as premium outlay.
  • Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.
  • Nonguaranteed elements, if shown on the illustration, may not be more favorable than the insurer’s illustrated scale, at any duration, and such elements must be clearly labeled nonguaranteed.
  • Guaranteed elements, if any, shall be shown before the corresponding nonguaranteed elements Any page of the illustration showing only nonguaranteed elements must reference the page where guaranteed elements are shown and include a statement indicating that guaranteed elements are found on that page.
  • The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and must be shown on the same page in close proximity to the corresponding value available upon surrender.
  • The surrender value shall be identified by the name the value is given in the policy and shall be the amount available as a lump sum, after the deduction of all surrender charges, policy loans, and policy loan interest.
  • Policy benefits and values may be shown on an illustration in graphic or chart form, in addition to the tabular form.
  • Any illustration of nonguaranteed elements shall include a statement indicating the values are not guaranteed and are subject to change, that the assumptions on which they are based are subject to change, and that actual results may be more or less favorable.
  • If the illustration shows that premiums can be paid, lowered, or limited using nonguaranteed policy elements, it shall disclose that charges continue to be required despite the actual results of the policy and that, depending on actual results, the premium payer may need to continue or resume premium outlays. If a contract premium is due, the premium outlay shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.
  • If the applicant plans to use dividends or other policy values to pay premiums on the policy, the illustration shall reflect such plans and disclose the impact of such funding arrangement on the policy’s future benefits and values.

Additionally, the basic illustration shall include narrative and numeric summaries as described in subsections (6) (b) and (6) (c) of the rule and shall include the elements described in subsection (6) (e) of the rule, in tabular form. A statement substantially similar to that appearing in subsection (6) (d) 1 of the rule must follow the numeric summary and be signed by the applicant or policy owner in the case of an illustration provided at the time of delivery. Further, intermediary agents or other authorized representatives must sign and date a statement substantially similar to that appearing in subsection (6) (d) 2 of the rule.

Standards for Supplemental Illustrations [refer to s. Ins 2.17 (7), Wis. Adm. Code]

The rule defines a supplemental illustration as "...an illustration furnished in addition to a basic illustration" [refer to s. Ins 2.17 (3) (s), Wis. Adm. Code].

A supplemental illustration may be provided as long as it is accompanied by or preceded by a basic illustration, provided the nonguaranteed elements shown on the supplemental illustration are not more favorable than the corresponding elements based on the scales used in the basic illustration, provided it contains a disclosure indicating that the nonguaranteed elements are not guaranteed, and provided the illustrated contract premium or premium outlay for the supplemental illustration is the same as that shown for the basic illustration. Additionally, the supplemental illustration must contain a statement informing the reader to consult the basic illustration for guaranteed elements and other important information contained on the basic illustration.

Delivery of Illustrations and Record Retention [refer to s. Ins 2.17 (8), Wis. Adm. Code]

If a policy is marketed with an illustration, a signed copy of the illustration must be provided to the applicant and retained by the insurer. If a policy is issued other than as applied for, a new basic illustration entitled "Revised Illustration" conforming to the policy as issued, shall be sent with the policy and signed by the applicant or policyowner and intermediary agent or other authorized representative of the insurer no later than the time the policy is delivered. A copy of the signed revised illustration shall be retained by both the policy owner and the insurer.

If no illustration is used by an intermediary agent or other authorized representative during the sale of a life insurance policy identified by the insurer as one marketed with an illustration, or if the policy applied for is other than the policy illustrated, the intermediary agent or representative shall provide the insurer with a signed statement to that regard and shall acknowledge that a basic illustration conforming to the policy as issued will be sent with the policy and signed by the applicant and intermediary agent or representative no later than the time the policy is delivered. A copy of the signed revised illustration shall be retained by both the policy owner and the insurer.

If the insurer mails a basic illustration or a revised illustration to the applicant or policyowner, it shall include instructions for the applicant or policyowner to sign the duplicate copy of the numeric summary and return the signed copy to the insurer. A self-addressed postage paid envelope shall also be provided.

The insurer shall maintain copies of all signed basic illustrations, supplemental illustrations, and intermediary agent certifications for all policies issued, for a minimum of three years after the policy is no longer in force. This does not apply to policies applied for but not issued.

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III. Annual Report to Policyholders [refer to s. Ins 2.17 (9), Wis. Adm. Code]

An insurer must provide the policy owner with an annual report, unless the policy does not build nonforfeiture values (in such cases an annual report is only required for those years when the insurer made a change to the nonguaranteed policy elements of the policy) containing the information described in subsection (9) (a) of the rule. Additionally, if an adverse change in the nonguaranteed elements of the policy that could effect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and shall prominently display the nature of the change [refer to s. Ins 2.17 (9) (e), Wis. Adm. Code]. If the insurer does not include an in force illustration with the report, the report shall contain the statement shown in subsection (9) (c) of the rule, advising the policyowner of their right to request an in force illustration. Pursuant to s. Ins 2.17 (9) (d), Wis. Adm. Code, insurers are required to provide an in force illustration to a policyowner within 25 calendar days of the policy owner’s request.

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IV. Reporting Requirements

Initial Filing Requirement

The following requirements must be met no later than December 31, 1997.

  1. Insurers must provide OCI with a list of all policy forms that will be actively marketed on January 1, 1998, and must indicate whether an illustration will be used with each form [refer to s. Ins 2.17 (4) (a), Wis. Adm. Code]. To assist insurers in complying with this requirement, a form entitled "Life Illustrations - Initial Identification" is on OCI's Web site.
  2. Insurers must provide OCI with the name(s) of the company’s illustration actuary(s) [refer to s. Ins 2.17 (10) (a), Wis. Adm. Code]. Initial identification of the illustration actuary(s) may be noted on the attached form.
  3. Insurers must advise OCI of the date by which the insurer will provide the department with the annual certifications described below [refer to s. Ins 2.17 (10) (g), Wis. Adm. Code]. This identification may be noted on the attached form.
  4. An officer of the company (other than the illustration actuary) must provide OCI with certification of the following:
    • That the insurer’s illustration formats comply with s. Ins 2.17, Wis. Adm. Code, and that the scales used in insurer-authorized illustrations are those scales certified by the illustration actuary [refer to s. Ins 2.17 (10) (f)1, Wis. Adm. Code].
    • That the insurer has provided its intermediary agents with information about the expense allocation method used by the insurer in its illustrations and which was disclosed in the annual certification [refer to s. Ins 2.17 (10) (f)2, Wis. Adm. Code].
  5. The illustration actuary must provide certification to OCI that the disciplined current scale used in illustrations is in conformity with the actuarial standard of practice for compliance with the National Association of Insurance Commissioners Model Regulation on Life Insurance Illustrations promulgated by the Actuarial Standards Board [refer to s. Ins 2.17 (10) (b), Wis. Adm. Code], and that the illustrated scales used in the insurer-authorized illustrations meet the requirements of s. Ins 2.17, Wis. Adm. Code [refer to s. Ins 2.17 (10) (b), Wis. Adm. Code]. The following disclosures must also be included with the certification:
    • The method used to allocate overhead expenses for all illustrations [refer to s. Ins 2.17 (10) (c) 6, Wis. Adm. Code].
    • A disclosure shall be provided if the nonguaranteed elements illustrated for new policies are not consistent with those illustrated for similar, in force policies [refer to s. Ins 2.17 (10) (c) 5, Wis. Adm. Code].
    • A disclosure shall be provided if the nonguaranteed elements illustrated for both new and in-force policies are not consistent with the nonguaranteed elements actually being paid, charged, or credited to the same or similar forms [refer to s. Ins 2.17 (10) (c) 5, Wis. Adm. Code]

Annual Certifications

  1. An officer of the company (other than the illustration actuary) must certify annually, by a date determined by the insurer, the following:
    • That the insurer’s illustration formats comply with Ins 2.17 and that the scales used in insurer-authorized illustrations are those scales certified by the illustration actuary [refer to s. Ins 2.17 (10) (f) 1, Wis. Adm. Code].
    • That the insurer has provided its intermediary agents with information about the expense allocation method used by the insurer in its illustrations and which was disclosed in the annual certification [refer to s. Ins 2.17 (10) (f) 2, Wis. Adm. Code].
  2. The illustration actuary must certify annually, by a date determined by the insurer, that the disciplined current scale used in illustrations is in conformity with the actuarial standard of practice for compliance with the National Association of Insurance Commissioners Model Regulation on Life Insurance Illustrations promulgated by the Actuarial Standards Board, and that the illustrated scales used in the insurer-authorized illustrations meet the requirements of s. Ins 2.17, Wis. Adm. Code [refer to s. Ins 2.17 (10) (b), Wis. Adm. Code]. The following disclosures must also be included with the annual certification:
    • The method used to allocate overhead expenses for all illustrations [refer to s. Ins 2.17 (10) (c) 6, Wis. Adm. Code].
    • Whether, since the last certification, a currently payable scale applicable for business issued within the previous 5 years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale.
    • A disclosure shall be provided if the nonguaranteed elements illustrated for new policies are not consistent with those illustrated for similar, in force policies [refer to s. Ins 2.17 (10) (c) 5, Wis. Adm. Code].
    • A disclosure shall be provided if the nonguaranteed elements illustrated for both new and in-force policies are not consistent with the nonguaranteed elements actually being paid, charged, or credited to the same or similar forms [refer to s. Ins 2.17 (10) (c) 5, Wis. Adm. Code].

Periodic Notifications

  1. The illustration actuary must notify the Commissioner, within 30 calendar days, of any disciplinary action taken against the illustration actuary by a Commissioner of another state [refer to s. Ins 2.17 (10) (c) 4, Wis. Adm. Code].
  2. The insurer must notify the Policy Form Filing section of the Bureau of Market Regulation of OCI within 30 calendar days of any change in the insurer’s illustration actuary [refer to s. Ins 2.17 (10) (h), Wis. Adm. Code].
  3. The illustration actuary must notify the insurer’s Board of Directors and the Policy Form Filing section of the Bureau of Market Regulation of OCI within 30 calendar days of the illustration actuary’s inability to certify the scale used for any policy form [refer to s. Ins 2.17 (10) (e), Wis. Adm. Code].
  4. The illustration actuary must notify the insurer’s Board of Directors and the Policy Form Filing section of the Bureau of Market Regulation of OCI within 30 calendar days of the discovery of an error in a previous annual certification filing [refer to s. Ins 2.17 (10) (d), Wis. Adm. Code].
  5. The insurer must notify the Policy Form Filing section of the Bureau of Market Regulation of OCI of any change in identification regarding whether a form filing is or is not used with an illustration [refer to s. Ins 2.17 (4) (a), Wis. Adm. Code].
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V. New Form Filing Submissions

Each new policy form filing submission subject to s. Ins 2.17, Wis. Adm. Code, shall indicate, in the cover letter, whether or not an illustration will be used with each policy or certificate noted on the transmittal sheet [OCI form number 26-015 (R 04/93)]. Refer to s. Ins 2.17 (4) (a), Wis. Adm. Code. If the submission contains policies or certificates that will be illustrated, the submission must also contain a certificate meeting the requirements of s. Ins 2.17 (10) (b), Wis. Adm. Code, from the illustration actuary [refer to s. Ins 2.17 (10) (d), Wis. Adm. Code]. The illustration actuary must also file the certification with the insurer’s Board of Directors.

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VI. Deviations From the NAIC Life Illustrations Model Regulation

While the rule is substantially similar to the NAIC Life Illustrations Model Regulation, there are some differences. Some of the more significant differences are listed below:

  1. The paragraph numbering between the two versions (OCI version and Model Regulation) is different. Subsection (2) of the Model Regulation (Authority section) was deleted from the OCI version and the subsequent paragraphs were renumbered.
  2. The definitions in subsection (3) of the OCI version have been alphabetized and in some cases, reorganized to eliminate subdivisions within paragraphs.
  3. Several formatting changes were done to comply with Wisconsin rule-making standards (i.e., organization of paragraphs and subdivisions, et al.).
  4. Subsection (9) (c) of the rule requires that an insurer provide an in-force illustration to a policyowner within 25 calendar days of the policy owner’s request.
  5. Subsections (10) (c) 4, (10) (d), (10) (e), and (10) (h), of the OCI version contain the language "...within 30 calendar days...," in order to clarify the time period in which an insurer must take a specific action.
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VII. The Rule’s Effect on Existing Regulations

OCI is aware that the life solicitation (s. Ins 2.14, Wis. Adm. Code) and life advertising rules (s. Ins 2.16, Wis. Adm. Code) are effected by the new life illustration rule (s. Ins 2.17, Wis. Adm. Code). As a result, a statement of scope has been filed, proposing changes to ss. Ins 2.14 and 2.16, Wis. Adm. Code, in order to eliminate any contradictory language between the rules. A hearing for the two rules was held on September 5, 1997. OCI anticipates that changes to s. Ins 2.14 and s. Ins 2.16, Wis. Adm. Code, will be done as an emergency rule in order to ensure that the effective date of such changes coincides with the effective date of s. Ins 2.17, Wis. Adm. Code.

OCI’s Web site contains up-to-date information regarding the status of rule changes and new legislation.

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VIII. Other Sources of Information

The NAIC has prepared a document entitled Questions and Answers- Life Illustrations Model Regulation which is available on the NAIC’s Web site.

Persons without Internet access may request a copy of the document by calling Ms. Carolyn Johnson at the NAIC at (816) 374-7165.

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IX. OCI Contact Persons

  • Copies of this technical bulletin may be obtained from Petra Ressler of the Central Files section at (608) 264-6232.
  • Copies of the rule may be obtained from Meg Gunderson of the Central Files section at (608) 266-0110.
  • Questions regarding the actuarial requirements of the rule may be directed to Dave Heineck at (608) 266-0095.
  • All other questions regarding the rule or this technical bulletin may be directed to Carla Strauch at (608) 264-6235.