Understanding the impact the CLHIA Guidelines have on insurance concept illustrations
Do you ever wonder why a sales concept illustration can’t be a simple one page document? The simple answer is that the information that must be included is too extensive to be summarized on one page. Since 1996, the Canadian Life & Health Insurance Association (CLHIA) has published guidelines with the purpose to “set out standards for the preparation and distribution of Illustrations….” The intent of the guidelines is to enhance our clients understanding of any insurance based illustration they may receive from an advisor.
Currently in Canada, we do not have government regulation regarding insurance illustrations. We use the guidelines as a basis of self-regulation. If our industry addresses this issue properly there will be less need for detailed regulations. The most recently published version (2008) provided additional requirements for supplementary illustrations. An insurance concept illustration is considered a Supplementary Illustration under these Guidelines.
There are several items in the Guidelines that apply to both the product illustrations as well as the concept illustrations. Some of these requirements include using clear terminology, proper pagination, and product rate assumptions that are reasonable. The time value of money must be reflected where columns are totaled and any values that are not guaranteed, must be identified as such.
In addition to the general Guidelines, there are items specific to concept illustrations. The following sections outline these items and describe the methods Manulife uses to ensure its concept illustrations are CLHIA compliant.
The Guidelines state that a Supplementary illustration must be accompanied by the corresponding product illustration(s) from which the values are taken. Manulife’s sales concepts include such a disclaimer in the Important Information disclosure pages, indicating that the sales concept presentation “must be accompanied by the appropriate Manulife insurance product illustration”.
The Guidelines require that the sales concept and the profile of the client for whom the concept is appropriate be described and that all significant risks be disclosed. To address this guideline, Manulife has updated and added Description pages to all of its insurance concept illustrations. In addition, all of the concepts include Important Information disclosure pages with leveraged concepts also including a Checklist page.
The Guidelines require that all assumptions used, be described. The information boxes located at the top of many of the ledger pages provide a summary of assumptions used in the sales concept presentations.
The Guidelines contain requirements that are specific to concept illustrations using a collateral loan. These additional requirements include ensuring that the loan rate is reasonable relative to the policy rate and that any additional collateral required to secure the loan is shown. Also required is analysis/information that helps the client understand what could happen if they live beyond the assumed life expectancy age, if loan interest rates change, if the loan margin is exceeded or if the loan is called. Manulife addresses these requirements through the use of rate sensitivity pages, a cancellation value column, additional collateral required columns and the Checklist and Important Information pages.
With most concept illustrations the benefits from the life insurance policy will be compared to an alternative taxable investment. The Guidelines require that the alternative investment have comparable cash flows and that investment return assumptions are reasonable relative to the assumptions used for the insurance policy.
By providing compliant illustrations, Manulife enables advisors to be in line with industry standards and helps to ensure that clients understand what they are buying.
Date: July 2017