Is IUL In Muddy Water Now?


Iowa is not the only state in which insurance officials are tracking sales practices tied to indexed insurance products. New York insurance regulators are reportedly sniffing around indexed sales practices, too.

In Iowa’s case, the object of scrutiny is advertising of fixed indexed annuities.

In New York’s case, the eagle eye is on indexed universal life (IUL) sales practices.

In both states, the regulatory focus is on clamping down on sales practices that the regulators deem misleading or deceptive, as pertains to indexed products.

News of the New York investigation is spotty right now. But that spottiness provides an opening for misinformation that can muddy the water for consumers. Let’s go through it.

IUL is making waves. It grew 13 percent in the first half of 2014 versus first half last year, and it accounted for 42 percent of total universal life premium in second quarter, according to LIMRA. Wave-makers always get regulatory attention, and IUL is no exception.

According to a Wall Street Journal article, New York Department of Financial Services Superintendent Benjamin Lawsky has asked 134 insurers in the state to provide information about IUL illustrations. Lawsky is concerned that some “may be giving buyers overly optimistic projections of potential gains in the policies,” wrote reporter Leslie Scism, citing the letter and people familiar with the investigation.

Now for the muddy-water problem. At least 17 websites linked to the article within hours of its posting. Most of the links used the same headline — New York Probes Indexed Universal Life Sales Practices — or a slight variation thereof. But one posting omitted a word from the title that, to many insurance professionals, is critical for clarity. This is the word “indexed.” This particular title says: “New York probes universal-life sales practices.”

That second headline seems a bit more digestible, especially for readers outside the life insurance industry.

However, for people inside the industry, it does not correctly identify which product is under investigation. Is it traditional universal life insurance, which credits interest based on the performance of the insurance company’s general account? Or is it indexed universal life insurance, which links its credited interest to the upward movement of one or more financial indexes?

The question would not be particularly worrisome except for this: The website in question is the highly trafficked, well respected marketwatch​.com. So the article will likely catch eyeballs from all over the Internet, especially from insurance people. That increases the likelihood that misunderstandings about this could spread.

Of course, many insurance professionals will probably read the article as well as the headline and see, in paragraph two, that this is about IUL, not universal life in general. So, end of confusion for them.

However, busy industry people sometimes settle for headlines. So do industry people who are only marginally informed about universal life or IUL, and those who are opponents of one type of universal life or another (or both). These professionals, along with consumers who happen to see the posting, could think that New York is “going after” all universal life sales practices. Who knows where such misinformation may travel?

It doesn’t help that New York, which is almost a poster child for transparency about regulatory moves, has not yet put anything on its website about its IUL sales practice investigation. Nor did it respond to InsuranceNewsNet inquiries about the investigation.

Perhaps that’s because its investigation is still under way. Perhaps the regulators have not yet decided what direction to take. But now that The Wall Street Journal has broken news about the 134 letters and the investigation, silence on the matter will open the door to even more misunderstanding.


Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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