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1994 0313 – The Washington Post – Do Life Insurers Foul the Sales Pitch?, By Albert B. Crenshaw

• 1994 0313 – NP – The Washington Post – Do Life Insurers Foul the Sales Pitch?, By Albert B. Crenshaw  —  [BonkNote]  —  [link]
  • Joseph Belth, James Hunt, MetLife (LIRP-Life Insurance Retirement Plan), Regulators
  • Joseph Belth – Whether this inaction is “because they don’t want to do anything or don’t understand or don’t have the resources I am not prepared to say,” Belth said, but he added, “I think it’s a combination” of those things.

• In late 1989, insurance regulators in Texas got a complaint from a consumer about a sales pitch he had received from Metropolitan Life Insurance Co. It appeared that agents of the giant life insurer were claiming to be selling retirement plans when what they really were offering was life insurance.
• Texas officials wrote to the company, and after two letters and nearly a year, New York-based MetLife assured them that the offering letter had been discontinued remaining copies destroyed.
• However, in May 1990, a similar pitch appeared in North Carolina, and regulators there asked for and got assurance that it would be dumped. Then the same thing happened in Tennessee, and the following year complaints surfaced in Virginia, Florida and New York.
• What those regulators were seeing turned out to be the tip of a major marketing scandal that involved about 60,000 consumers and one of the largest and seemingly most reputable companies in the industry. 
• Last week, a nationwide group of state regulators worked out a plan to assess MetLife $20 million in civil fines, the company has said it will offer consumers refunds that could total more than $75 million.
• But while most state insurance commissioners are satisfied with the outcome, critics last said situation taken as a whole – the company’s actions, the regulators’ response and the penalties assessed — raises questions about the level of protection consumers can expect when they enter the life insurance market.
• Life insurance and allied products such as annuities are very complicated and by their nature difficult to sell.  The benefits provided by a properly structured insurance plan can be immense, but not everybody needs life insurance and those who do may have difficulty laying out a lot of money for something that pays off after they are dead.
• Companies and their agents today often put heavy emphasis on the investment aspects insurance. They point to their products’ favored tax treatment – investment earnings on money inside a life policy or annuity are not taxed until they are received by the beneficiary, and not always then – and various ways policyholders can get their money out or perhaps stop paying premiums altogether after a number of years.
• But the complexity of the products and investment uncertainty leave a lot of room for consumers to misunderstand them, and for agents to deceptive sales pitches. Insurers tend to attribute most complaints to ______________ but critics say there is a lot more deception than the industry admits.
  • “It’s not just Met, it’s all across the industry,” said Joseph M. Belth, who taught insurance for many years at Indiana University and publishes the Insurance Forum, a consumer oriented newsletter.  “This is an industry in which various forms of deceptive practices flourish, and the regulators have not done anything about it.
  • Whether this inaction is because they don’t want to do anything or don’t understand or don’t have the resources I am not prepared to say,” Belth said, but he added, “I think it’s a combination” of those things.”

• Sen. Howard Metzenbaum (D-Ohio), a longtime advocate of shifting insurance regulation from the states to the federal government, called the outcome of the MetLife case “proof positive that the state regulatory system doesn’t work. The penalty was “a slap on the wrist, he said, and did not reach the senior executives of the company.  Ironically, Metzenbaum and others noted, since MetLife is a mutual company owned by its policyholders the penalty will be paid by the other MetLife policyholders.  MetLife spokesman Charles Sahner emphasized last week, however, that the policies involved in the deception represented only a tiny fraction of the company’s business and that the company will ensure that no one who bought a policy based on the misleading sales materials lose one dime.  Deceptive sales practices are “just not MetLife’s way of doing business.” What happened shouldn’t have happened, and I think we’ve taken steps to make sure it won’t happen again,” he said.  The MetLife case centered on a sales campaign developed in a Tampa office. It focused on nurses and purported to offer them a retirement savings plan. What was really being sold, though, was traditional whole life insurance policies that provide for a death benefit but also have an investment component. The investment component typically is used to keep premiums down in later years when the insurance cost would be expected to rise. However, it is possible for the policyholder to borrow out that money or gain access to at least some of it in other ways.
• The sales material, according to a special study commissioned by Florida Insurance Commissioner Tom Gallagher, emphasized the savings aspect and did not mention insurance.  Regulators said the policies were easy to spot in company records: In contrast to typical insurance policies where the policy amounts are in even amounts $50,000, for example and the premiums in odd amounts, the “savings plans” had premiums that were even such as $150 or $200 a month and policy amount in odd sums. 
• The sales campaign was highly successful and widely copied by other MetLife offices.
• As complaints came in to state regulators, their usual response was to question MetLife and to accept its assurance that the material was being withdrawn. Concerted action came only after some of MetLife’s own employees went to regulators in Florida and then filed suit, and after television exposes in Pennsylvania.
• Working through the National Association of Insurance Commissioners (NAIC), which is the national group through which states to coordinate their activities, regulators hammered out the fine and other arrangements.
• But critics wonder whether consumers who are not caught up in such wide-ranging and obvious infractions can count on much protection. More than 200,000 agents sell life insurance today, according to industry officials, and policing them is no easy task, especially with the relatively fragmented state regulatory system.

• “It is fair to say that the life insurance business is thoroughly unregulated as to sales practices, despite a number of regulations” designed to do so, said Jim Hunt, an actuary associated with the National Insurance Consumer Organization, an Alexandria group. “There’s virtually no restraint on the conduct of life insurance agents, certainly not on the part of regulators.” Hunt said that what MetLife did was probably a modest sin” as these things go, in that what consumers were told, “while perhaps not fully understood, {were} not lies. He said that other deceptions, such as misleading illustrations of how investment-oriented policies are likely to perform in the future, are “worse… in terms of the financial impact on the lives of people.
• David J. Lyons, Iowa insurance commissioner and vice president of the NAIC, said regulators did act quickly in the MetLife case, “and I think even our most ardent opponents have noted the with which this occurred.
  • Lyons said the NAIC has recognized that regulation of agents is an important new area and it is completing work on new model laws and regulations for state adoption. He also said the NAIC has established databases for regulatory actions that state officials can use to check for patterns of abuse.
• For consumers, though, the best protection remains smart shopping. Industry experts and financial planner urge people contemplating life insurance to:
  • Be sure you really need it. Insurance provides money to replace income by the insured person’s death or to pay estate taxes. If you have no dependents you probably don’t need it.
  • Check out what is offered through your employer. Group term coverage through your job is often a good deal, especially if you are older.
  • Understand the various kinds of policies term, whole life and investment-oriented policies such as universal and variable. Term is good for short-term needs but can get expensive as the insured person ages. The investment vehicles that depend on interest rates or the stock market are more unpredictable, while whole life is predictable but more expensive.
  • Talk to more than one agent or carrier. Few people, even agents themselves, understand everything about insurance. Compare the prices and explanations given by one with those of another, and shamelessly carry them back and forth until you are satisfied you understand what you are being offered. Don’t be shy about using one agent’s price to bargain down another. Insurers offer a lot of different prices, even on the same basic policy.
  • Don’t be in a hurry to buy. Life insurance is expensive and well worth spending weeks or months investigating. If an agent pressures you to hurry, that usually is a sign to slow down.