IIQE Paper 3 English Quiz 18

The insurance intermediary is also required to help the applicant:
• To list those riders/supplementary benefits that are granted under the existing life insurance policy(ies) but not under the new life insurance policy.
• To list the reasons why the new life insurance policy is more suitable for the applicant unless the applicant declares on the CPD Form that that is not his concern.
• To answer the question of whether the insurance intermediary has advised the applicant of any alternatives to replacing the existing life insurance policy.

Illustration Document
An ‘Illustration Document’ is required to be issued in accordance with the guidelines set out in the SFC’s “Code on Investment-Linked Assurance Schemes”. The insurance company has to prepare an illustration document in conjunction with each proposed investment by each prospective scheme participant and provide the document to the latter for his review and signature prior to the signing of the application form.

The references to insurance intermediaries in relation to the CPD Form shall include insurance agents, insurance brokers, their responsible officer/chief executive(s), and technical representatives, as appropriate. It allows an individual to access opportunities of scale available only to large institutional investors.

Selling office
Where the client opts for reinstatement of the Existing Policy, it is the selling office, rather than the non-selling office, who will be responsible for paying any claims, subject to the terms and conditions of the New Policy, that may have occurred on a date when the existing policy had been surrendered or lapsed in the course of the policy replacement.

In identifying twisting, this may be initiated from a number of sources:
• Client initiated, if a client complains about suspected twisting
• Selling office initiated, if the selling office, in the course of reviewing its internal controls and the CPD Forms

Non-selling office initiated: If an office has evidence that its existing or ex-policyholders have suffered because of twisting by an insurance agent(s) of other office(s)/insurance broker(s), it has to investigate and take action.

Once twisting is identified as likely to have occurred, the offices concerned should attempt to reach an agreement. This imposes an obligation on the offices to keep the client’s interest foremost. The client has to be kept informed of any material facts or arrangements which may affect his interest.

If it is agreed that twisting has occurred, the selling office must immediately:
• They should report the insurance agent to the Insurance Agents Registration Board (IARB), or the insurance broker to the relevant broker body or the Insurance Authority as appropriate.
• They should suspend the insurance agent from selling any further new life insurance, or suspend accepting any further new life insurance sold by the insurance broker’s chief executive/technical representative who did the twisting.
• They should claw back the commission paid on the case(s) in question.
• They should write to the client, explaining that he may have been sold policy(ies) unprofessionally, and giving him the option to end the arrangements, request the return of all the premiums paid on the New Policy, and reinstate the Existing Policy(ies).

The non-selling office has to arrange terms for reinstatement of the Existing Policy(ies), if the client so wishes, to allow the client, to the maximum extent possible, to return to the same position as if the twisting had not taken place. Where the client opts for reinstatement of the Existing Policy, it is the selling office, rather than the counseling office, who will be responsible for paying any claims, subject to the terms and conditions of the New Policy, that may have occurred on a date when the existing policy had been surrendered or lapsed in the course of the policy replacement.

If it cannot be agreed that twisting has taken place, the complaining client or office may refer the complaint to the IARB, the relevant broker body or the IA as appropriate, which will give a ruling. Where twisting is established, it will decide on the appropriate disciplinary action against the insurance agent or insurance broker and inform the client of his rights to a reinstated Existing Policy and to a return of all the premiums paid on the New Policy.

An up-to-date Principal Brochure should contain the information necessary for the participants to be able to make an informed judgment of the investment proposed to them. In addition, an ‘Illustration Document’ is required to be issued in accordance with the guidelines set out in the SFC’s “Code on Investment-Linked Assurance Schemes”.

In the event that the Life Insurance Council finds that an insurer has failed to comply with the above process, it will:
• seek cooperation from the office(s) concerned
• endeavor to mediate among all parties concerned
• the case to the IA where there is concrete evidence of non-compliance

Minimum requirements for the information to be included in the illustration document are surrender values and death benefits and prescribed statements.

In surrender values and death benefits, it should be based on either 4 different assumed rates of return of 0%, 3%, 6%, and 9% per annum respectively, or 3 different assumed rates of return of 0%, 3%, and 6% per annum respectively. The insurance company must indicate what the policyholder would be expected to receive if he redeems at the end of each of the first 5 years of the contract. The insurance company should illustrate the projected death benefits in the event that the life insured dies on those alternative dates without the policy being redeemed.

The LIC has produced the “Standard Illustration for Participating Policies” with the purpose of ensuring that every prospective policyholder is provided as a minimum with a summary illustration of the benefits of a participating insurance policy. The purpose of the Standard Illustration is to ensure that each prospective policyholder is provided as a minimum with a summary illustration of the benefits of universal life (non-linked) insurance policy.

Apart from figures, the Illustration Document includes the following explanatory notes, information, advice and warning:
• The illustration given is only a summary illustration of the major benefits of the proposed policy.
• The illustration refers to the Basic Plan only, and assumes that all premiums are paid in full as planned without exercising the premium holiday option.
• When reviewing the values shown in the illustration, the applicant should take note that the cost of living in the future is likely to be higher than it is today due to inflation.

Apart from figures, the Illustration Document includes the following explanatory notes, information, advice, and warning. When reviewing the values shown in the illustration, the applicant should take note that the cost of living in the future is likely to be higher than it is today due to inflation.

The charges to be disclosed should be separated into five categories, it includes premium charge, surrender charge, cost of insurance, policy administration fee, and all other current and maximum fees and charges.

Apart from figures, the Illustration Document includes the following explanatory notes, information, advice, and warning. The applicant should only apply for the product if he intends to pay the premium for the whole of the premium payment term.

In the event that the Life Insurance Council finds that an insurer has failed to comply with the above process, it will:
• seek cooperation from the office(s) concerned
• endeavor to mediate among all parties concerned
• the case to the IA where there is concrete evidence of non-compliance

The standard information to be included in the Illustration Document is set out in a sample format obtainable from the HKFI or supplied by the insurance company. The policy may terminate if the Account Value is insufficient to pay the charges, or the policy loan balance (if applicable) exceeds the Account Value.

In company customization, the insurance companies may customize the Illustration Document, except otherwise stated, to exclude the information not applicable to the product and not relevant to customers; and to include additional information provided that such additional information is not misleading and does not otherwise detract from the information disclosed in the standard requirements.

The additional information should be relevant to illustrate the product details to customers. Company customization is also subject to such other limitations as limitations on the use of insurance terminology, the presentation of figures and the printing format, and requirements on the applicant’s signature.

The illustration should be free of any misleading statement, promise or representation. The insurance company’s Appointed Actuary is responsible for taking all reasonable steps to ensure that the insurance company’s potential policyholders are not misled as to their expectations.

The insurance company should project the values using two different assumptions. The first one is based on the minimum guaranteed crediting interest rates prescribed under the policy. The second one is based on the current assumed crediting interest rate (i.e. the current crediting interest rate assumption based on a best estimate) forecast by the insurance company.

Appointed Actuary
In setting the best estimate assumptions in the Current Assumed Basis, the insurance company’s Appointed Actuary should have regard to the Actuarial Guidance Notes (AGN) on Best Estimate Assumptions by the Actuarial Society of Hong Kong (ASHK).

The LIC has produced the “Standard Illustration for Participating Policies” with the purpose of ensuring that every prospective policyholder is provided as a minimum with a summary illustration of the benefits of a participating insurance policy (excluding universal life insurance).

In the standard illustration for participating policies, the standard information to be included in the Illustration Document is set out in a sample format obtainable from the Hong Kong Federation of Insurers (HKFI) or supplied by the insurance company.

Company’s dividend/bonus scales
The projected non-guaranteed benefits included in Section 3 of the Standard Illustration (which is headed Basic Plan – Illustration Summary) are based on the company’s dividend/bonus scales determined under current assumed investment return and are not guaranteed.

Pooled funds are funds in a portfolio from many individual investors that are aggregated for the purposes of investment. The experience of the pooled fund over a given period is a function of the fund’s investment yields, expenses, claims, etc. for that period.