Mounting Scrutiny of Indexed Life Shines Light on Tools to Check Illustrations

San Diego-based Ensight develops cloud-based software that can compare the performance of permanent and term life insurance under different market scenarios.

Warren Hersch
Life Annuity Specialist (FT Specialist)
September 25, 2020
Life Annuity Specialist
A software developer thinks it has identified virgin territory in the insurtech market.

San Diego-based Ensight develops cloud-based software that can compare the performance of permanent and term life insurance under different market scenarios.

The insurtech, which counts more than 500 companies as clients, including carriers and distributors, is hoping an impartial analysis of life insurance policies will be appealing. Indexed universal life products, a fast-growing category with sales that grew 14% last year, have been criticized for the complexity of their payouts.
Ensight Chief Marketing Officer Matt Essick

The latest addition to Ensight’s client roster is Advisors Insurance Brokers, which this month agreed to begin offering the platform to its agents, including sellers of hybrid life products, long-term care and disability income insurance.

Ensight Chief Marketing Officer Matt Essick says by presenting product illustrations in a visual, easy-to-grasp format, its software closes a long-standing gap with other software, such as eMoney and MoneyGuidePro, that advisors use to analyze investments in financial planning.

“This is one of the only areas that hasn’t evolved a more modern digital experience,” Essick says of life product illustration software. “It is not only important for consumers to be able to compare policies on a like-for-like basis, but also understand how these policies react to different market conditions and crediting rates.”

Stepping into a Maelstrom
Software to independently analyze insurer-created illustrations could prove attractive to agents who are selling products such as indexed universal life, which has drawn scrutiny. The insurance contracts have been a focus of the National Association of Commissioners.

In late November, life insurers are expected to start working from a new template for illustrating the products: the NAIC’s Actuarial Guideline 49A. The amended framework accounts for product features — with names like index multipliers, buy-up accounts and persistency bonuses — that didn’t exist when the original guideline came into force in 2015.
Valmark Financial CEO Larry Rybka

Its backers, such as the American Council of Life Insurers, say the new guideline will better align illustrated returns with the product’s real-world performance. Whether it does or doesn’t, agents and advisors might still face a potentially daunting task: how to compare, present and recommend often complex products and features from multiple insurers when working with clients.

It’s not easy to do, according to Larry Rybka, CEO of broker-dealer Valmark Financial.

“I would ask the fundamental question, how can anyone accurately compare IUL products today?” he says. All the illustrations are “built on foundation of sand,” he said.

That’s partly because carriers are using bad assumptions, such as how much certain options embedded in the products are worth. That in turn leads to exaggerated predictions of possible returns.

The amended guideline did do some good though, according to Manoj Upreti, a senior analyst at the Aite Group. It now limits insurers in how they illustrate products, so those with multipliers to enhance returns can’t be shown to perform better than those without.

Advisors will need tools that can compare products from different carriers on a more equitable basis, he said.
Manoj Upreti, a senior analyst at Aite Group

“Given the complexity of IUL products, and the impact of changing regulations on the assumptions, a tool to illustrate performance over time and its alignment with a customer’s financial planning goals should be quite helpful to the advisors,” he says in an email.

What’s in The Cloud
Ensight’s platform can illustrate products from multiple illustrations meant to make comparisons easy. That’s often a challenge, notes Essick. A policy “ledger” — a computer-generated illustration of a cash value life insurance contract’s current, projected, and guaranteed values — aren’t presented uniformly from contract to contract.

The software can also show how a product will perform under different “stress tests” or scenarios, such as one where a policy yields a 4.5%, 5.5% or 6% or higher rate of return.

“Understanding not only how the policy performs under the best conditions, but how they will perform under a variety of conditions is an absolutely critical factor for a lot of financial advisors,” says Essick.

The software platform can also generate a “digital audit trail,” documenting products, features and options the advisor presented to the client, and which product was recommended. Essick thinks this could be used to help satisfy new best interest and enhanced suitability rules, such as New York’s Regulation 187.
Trish DaCosta
KCD PR – Media Contact
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