Conflict of Interest

  • 1966 – LR – The Unauthorized Practice of Law by Laymen and Lay Associations, by Loyd P. Derby – 34p

  • 2005 – LR – The Dirt on Coming Clean, 

  • When rendering legal advice to customers, life insurance salesmen have a conflict of interests-they are interested in setting up an estate plan with the maximum amount of life insurance regardless of the best interests of their client.141

    • Furthermore, there is no indication that other lay estate planners are rendering a public service by providing competent, low-cost service to the public; in fact, it appears that the opposite is true.142

  • For these reasons, the courts have not hesitated to enjoin life insurance salesmen and other lay practitioners from rendering advice that applies specific legal principles to the customer’s particular situation.143

  • It is likely, however, that many of these activities go undetected, and to discourage them, local bar associations must do more than attack them in the courts.

    • The bar must find some effective means of providing these services competently and at a low cost to all the members of the public.

1966 – LR – The Unauthorized Practice of Law by Laymen and Lay Associations, by Loyd P. Derby – 34p

Compensation

  • Bonuses
  • Charge Backs
  • Commissions
  • Fee For Service
  • Fee Only
  • Flexible Compensation
  • Overrides
  • Servicing
  • Target Premium
  • Trips, etc
  • From a distribution perspective, I think one of the challenges that face us in UL is the servicing of UL. 
  • Flexible premium, high-degree-of-service UL products have little or no renewal compensation paid if there’s no premium paid. 

—  Daniel F. Byrne

1999 – SOA – The Next Generation Universal Life, Society of Actuaries – 30p

  • 1986 – SOA – New Forms of Agency Compensation — Impact On Product Design And Company Profitability, Society of Actuaries – 42p

Independent Contractors

  • NAIC – captive vs. independent agents – naic.softlinkillumin.net/knowledgebase/#/question/128992′
    • Number of agents:
      • 422,600 total insurance agents in the US (2021)
      • 41,290 total in California
    • Captive agents – employees or contractors?
      • In 2019, the 6th Circuit held that American Family agents were independent contractors based on the Supreme Court’s Darden standard. This essentially considers “the hiring party’s right to control the manner and means by which the product is accomplished.”
        • This article from Faegre Drinker covers this in more detail
      • Investopedia says captive agents could be employees or contractors, but doesn’t cite a source
  • 2021 1220 – JDSupra – Insurance Agents as Independent Contractors: Best Practices To Preserve This Status – [link]

Agent – Failure Rate

  • 1962 – SOA – Discussion of Subjects of Special Interest: Agency Compensation, Society of Actuaries – 11p
  • 1962 – SOA – Discussion of Subjects of Special Interest: Agency Compensation, Society of Actuaries – 11p
    • (p5) – Russell R. Jensen: We have not seen much change in agent turnover recently at Northwestern Mutual.
      • The following table shows the number of agents we would expect to survive to the end of each contract year, out of 100 originally contracted:
      • No. of Surviving End of Year Agents
        • 1 …………………………………….. 70
        • 2 …………………………………….. 50
        • 3 …………………………………….. 40
        • 4 …………………………………….. 35
        • 5 …………………………………….. 30
    •  

New Agents

  • Failure Rate / Retention Rate
  • Financing
  • Source
  • Training
  • A. What methods of subsidizing new managers or general agents are being used in scratch agencies and established agencies? What type of performance standards are required in determining when a new man should receive an increase or decrease in compensation or be terminated?
  • B. Is the manager or general agent required to share in losses on agent financing, and how is his share of the loss determined?
  • C. What research has been done on the cost of developing new agencies? Have any cost standards been determined?
  • D. What methods have been found successful by life companies not connected with property companies in developing life business from general insurance firms? What problems have been encountered by life subsidiaries of property companies in attracting life business from brokers of the parent company

1965 – SOA – Digest of Smaller Company Forum– New York Regional Meeting Agency, tsa65v17pt2dn47ab6 – Society of Actuaries – 36p

  • If any company is to emphasize sales, it must concentrate upon the development of new manpower.
    • Such development in any era has meant substantial expenditures, but with the economic environment of the past fifteen years, the threat of financial loss has grown to such proportion as to demand the attention of all agency and actuarial heads of our industry.

—  John S. Acheson

1962 – SOA – Discussion of Subjects of Special Interest: Agency Compensation, Society of Actuaries – 11p

  • [Agent Retention Rate]
  • Our retention ratios are viewed by many with alarm.

1962 – SOA – Discussion of Subjects of Special Interest: Agency Compensation, Society of Actuaries – 11p

 

 

Chargebacks

  • Perhaps the most common criterion today to measure an agent’s performance during his financing period is the net annualized premium or commission. Under this method the agent receives a validation credit for the annualized amount, regardless of premium frequency, but is debited with a portion of his annualized credit in the case of a lapse within the first policy year. The administration of these chargebacks is troublesome, but more important, an agent with poor persistency may be financed for two or three months beyond the point of nonvalidation on the strength of business on which premiums are no longer being paid.

—  John S. Acheson

1962 – SOA – Discussion of Subjects of Special Interest: Agency Compensation, Society of Actuaries – 11p

Agent – Lead Generation

  • 2023 1213 – Press Release – FCC – FCC Adopts New Rules To Close The ‘Lead Generator’ Robocall And Robotexts Loophole And Facilitate Blocking Of Unwanted Robotexts, Federal Communications Commission – [link]  —  2p
    • 2023 1212 – Reuters – New FCC rule on lead generation expected to spur wave of lawsuits, By Diana Novak Jones – [link]
      • Lead generation has long been used to connect people with mortgage quotes, insurance brokers and home improvement businesses. More recently, it has been employed by personal injury attorneys and lawyers looking for clients in mass litigation.
    • 2023 1214 – The DIG Agency! – FCC Makes Bogus Insurance Leads Illegal! MLMs Shaking In Their Boots! Can I Get An AMEN!? – [VIDEO-YouTube]

Pyramid Scheme

  • “An organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits,” said W. O. Myrick, a retired chief insurance examiner for Louisiana.
    • If A.I.G.’s incoming premiums shrink, he warned, “the whole thing’s going to collapse in on itself.”

2009 0731 – NYT – After Rescue, New Weakness Seen at A.I.G., by Mary Williams Walsh – [link]

  • (p1) – Frank E. Moss (D-UT) – Today we will look into the strange and disturbing world of the fast buck pyramid sales scheme.
    • Untold hundreds of small investors have been bilked out of hard earned savings by the fast talking operators of these get rich quick schemes. 

1974 0710 – GOV (Senate) – Pyramid Sales, Frank E. Moss (D-UT)  —  [BonkNote]  —  [PDF-185p-GooglePlay]

  • Market value accounting presents the real economic “worth” of the insurance operation, and shows how that worth can and does change when the external environment changes.
    • This information is valuable on a going concern basis as well as on a sale or liquidation basis, since an insurance company cannot be managed indefinitely as a pyramid scheme.

—  Joseph J. Buff, Research Associate with Morgan Stanley

1986 – SOA – Corporate Modeling and Forecasting (Practical Aspects of the Valuation Actuary Recommendations), Society of Actuaries – 42p

  • (p172) – Like all savings institutions, life insurance companies compete for a share of the consumer’s dollar, with the implicit intention of diverting income into the capital market.
    • The principal asset producing contracts under which life insurance is sold are long-term and they tend to accumulate funds for investment in a very stable, rising trend.
    • The essential instrument in this accumulation is the level premium which produces reserves in the early policy years to offset the higher mortality costs as the policies age.
  • I am sure the committee does not want me to go into detail on the arithmetic technicalities of level premiums, but you should know that an increase in the net sales of life insurance is necessary to maintain the upward thrust of fund accumulation and asset growth to cover reserves.
    • One precent a year is not quite enough to do this on a year-in and year-out basis in an established company.
    • Five percent, however, does quite nicely, and 10 percent produces really spectacular results.
  • …
  • To overcome this arithmetic, the companies must sell additional issues each year and the net sales trend must be upward.

—  Statement of Orson H. Hart, Vice President and Director of Economic Research, New York Life Insurance Co. 

1968 0508/0509/0515/0516 – GOV (JEC) – Standards For Guiding Monetary Action. William Proxmire (D-WI) – [PDF-319p]

  • 1968 0508/0509/0515/0516 – GOV (JEC) – Standards For Guiding Monetary Action. William Proxmire (D-WI) – [PDF-319p]
  • 1986 – SOA – Corporate Modeling and Forecasting (Practical Aspects of the Valuation Actuary Recommendations), rsa86v12n212 – Society of Actuaries – 42p
  • Albania
  • 1997 – SOA – Social Security and Medicare-What Does the Future Hold?, rsa97v23n1114pd – Society of Actuaries – 23p
  • 1998 0513 – FTC / IMF – Statement of Debra A. Valentine, General Counsel of the FTC, on “Pyramid Schemes,” presented at the IMF Seminar on Current Legal Issues Affecting Central Banks – 9p
  • 1999 – IMF – Book – Chapter 16 – Pyramid Schemes, by Debra A. Valentine, FTC -Current Developments in Monetary and Financial Law, Vol. 1 – [30p-Download-link]
    • With the exception of a few areas like air travel and insurance, the Commission has broad law enforcement authority over virtually every sector in our economy.
  • 1999 0509 – 60 Minutes – IHI International Heritage – Stan VanEtten – 
  • 2002 Spring – AP – Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid chemes, by Peter J. Vander Nat and William W. Keep, Journal of Public Policy & Marketing,  Vol. 21, No. 1, Social Marketing Initiatives, pp. 139-151 – 14p
  • 2004 0114 – Letter – FTC to Direct Selling Association – re: Pyramid Scheme Analysis, Federal Trade Commission – 3p
  • 2004 0316 – re: Equitable – HOUSE OF COMMONS – MINUTES OF EVIDENCE – TAKEN BEFORE TREASURY COMMITTEE – [link]
  • 2009 0731 – NYT – After Rescue, New Weakness Seen at A.I.G., by Mary Williams Walsh – [link]
  • 2014 02 – AP – A Brief History of the FTC’s Bureau of Economics: Reports, Mergers, and Information Regulation, Review of Industrial Organization, 46(1):59-94, by Paul A. Pautler – 36p
  • 2015 – A HISTORY OF THE FTC’S BUREAU OF ECONOMICS, by Paul A. Pautler – 181p
  • 2004 0316 – re: Equitable – HOUSE OF COMMONS – MINUTES OF EVIDENCE – TAKEN BEFORE TREASURY COMMITTEE – [link]
    • Q569 Angela Eagle: It is an extraordinary story to see what happened in the Society as shown by Lord Penrose, which surely must have some lessons. We had a Society where certain leading members of it decided to behave in this way and dissipated entirely the Society’s reserves in going for growth and pursuing business. They almost became like a pyramid scheme over time.
    • We had a board that, in Lord Penrose’s words, at no stage fully got to grips with the financial situation, which was too fragmented, had collective skills which were inadequate for the task, no effective arrangements for ensuring that there was detailed examination, or none that were reported to the Board. We then had policyholders not being told about this approach to fund management which was “fairly novel”, let us put it that way, and almost like being a bank without having any reserves. Policyholders were not told, between 1983 and 1986, that this approach to asset management had been adopted. This was and is a mutual society. Could this have happened if there had been shareholders rather than policyholders? What implications are there for regulation of mutuals in order to prevent this extraordinary state of affairs from developing again
  • Michael, your situation you were describing in Egypt sounded exactly like a classic pyramid scheme.
    • As an actuary for small defined benefit plans, I’m concerned about being a fiduciary. What can I do to make sure I avoid being a fiduciary, am I one per se, or are there some things that I do that make me one, other things I can avoid doing to avoid being one?
  • [Bonk: Michael = Michael Sze]

—  From the Floor

2003 – SOA – Sponsors’ Risk Management and Fiduciary Risk, rsa03v29n2108pd – Society of Actuaries – 15p

  • Last point: This is one that I’m making in honor of my good friend, Bob Myers, who is a name that probably all of you know. Bob gets very, very upset, I think rightly so, when Haeworth refers to Social Security as a Ponzi scheme.
  • Bob makes the point, and I think it’s a valid one, that Ponzi schemes require ever increasing numbers of participants.
    • If you don’t have more and more people coming in all the time, then the Ponzi scheme goes broke. It’s a pyramid scheme like they had in Albania.
    • Ponzi schemes can’t survive because, obviously, there’s a finite number of people on the planet. Social Security, on the other hand, would be all right if it just had stable numbers of participants.
    • If the ratio of workers to beneficiaries was just stable, it would be OK. But it’s not stable; it’s declining.
      • And it’s declining rather precipitously.
      • That’s going to be a problem.
    • There’s not too much we can do about it, except import a lot of people from other countries or something like that. Which may well be the answer. 

—  Bruce D. Schobel, New York Life Insurance Company

1997 – SOA – Social Security and Medicare-What Does the Future Hold?, Society of Actuaries – 23p

  • 1968 0304, 05, 20, and 21- GOV (Senate) – Door-to-Door Sales Regulation, Warren G. Magnuson (D-WA)
    • [PDF-347p-GooglePlay-link]
    • Direct Selling, 
    • (p133) – THE RIGHT OF FREE MEN TO ENGAGE IN LEGITIMATE BUSINESS, By National Better Business Bureau, Inc., New York, N.Y.
      • The right of free men to engage in legitimate business is exemplified by the door-to-door salesperson who is so familiar a part of the contemporary American scene.
      • DIRECT SELLING IS LOCAL BUSINESS – Aside from these independent salesmen, a surprising number of established local business firms of an average community use direct selling methods. They include: Insurance agents and agencies
    • (p) – NALU – NATIONAL ASSOCIATION OF LIFE UNDERWRITERS,  March 29, 1968 – DEAR SENATOR MAGNUSON : As an association of more than 100,000 life and health insurance agents, we would like to take this opportunity to express our views on S. 1599, the “Door- to- Door Sales Act.
    • Senate – Committee on Commerce – Consumer Subcommittee
  • 1974 0710 – GOV (Senate) – Pyramid Sales, Frank E. Moss (D-UT)
    • [PDF-xp-GooglePlay]
    • (p1) – Frank E. Moss (D-UT) – The subcommittee will come to order. Today we will look into the strange and disturbing world of the fast buck pyramid sales scheme. Untold hundreds of small investors have been bilked out of hard earned savings by the fast talking operators of these get rich quick schemes. 
    • (p1) – Frank E. Moss (D-UT) – The bill which we will consider is S. 1939, introduced by Senator Mondale of Minnesota, and co-sponsored by 10 senators, among them the Chairman of the full committee and the Chairman, Vice-Chairman and ranking minority member of this subcommittee.
      • This indicates some of the concern that is felt in legislative circles on this matter of pyramid sales which are used to swindle people who are gullible.
    • Senate – Committee on Commerce – Subcommittee for Consumers 
    • S. 1939 – To Prohibit Pyramid Sales Transactions, and for Other Purposes
  • Albania
  • 1999 – IMF – The Rise and Fall of the Pyramid Schemes in Albania, by Christopher Jarvis, International Monetary Fund – 36p
  • 2000 03 – IMF – The Rise and Fall of Albania’s Pyramid Schemes, by Christopher Jarvis, March 2000, Volume 37, Number 1, International Monetary Fund – [link]
    • This article is based on Christopher Jarvis, 1999, “The Rise and Fall of the Pyramid Schemes in Albania,” IMF Working Paper 99/98 (International Monetary Fund: Washington
    • During 1996-97, Albania was convulsed by the dramatic rise and collapse of several huge financial pyramid schemes. This article discusses the crisis and the steps other countries can take to prevent similar disasters.
  • 2023 0329 – TheRichest – The Pyramid Scheme That Ruined A Country – [VIDEO-YouTube]

Companies vs. Agents

  • Bob Wright (Virginia) said the Society of Actuaries report referred to the fact that companies said they had no control over what agents did.

1994-4, NAIC Proceedings

⇒  1991-1992 – SOA – Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries  —  [BonkNote]  —  142p

  • Crown Life v. Casteel – 98-0218
    • 2000 – LC – Crown Life Ins. Co. v. William Casteel, Agent – 22 SW 3d 378 – Texas Supreme Court – [Google Scholar link]
      • William E. Casteel sold insurance policies as an independent agent of Crown Life Insurance Company.
      • One of the policies sold by Casteel led to a lawsuit by policyholders against Casteel and Crown.
      • In that lawsuit, Casteel filed a cross-claim against Crown. 
  • 2013 – LC – Lincoln Benefit Life v. James W. Wilson, Agent
    • 4:13-cv-03210-RGK-CRZ
    • Doc 240 – Memorandum and Order – 5p
      • Plaintiff (LBL) contends Defendant (Wilson) is not entitled to payment of commissions for conversion of the term policies to universal life or whole life policies because he did not “produce” the universal life or whole life policies. I disagree…..
  • 2003 – LC – Kenneth JORDAN, Agent v. METROPOLITAN LIFE INSURANCE COMPANY
    • No. 03 Civ. 4110(SAS) – 280 F. Supp. 2d 104
    • United States District Court, S.D. New York
    • August 22, 2003
    • https://law.justia.com/cases/federal/district-courts/FSupp2/280/104/2501317/
      • On October 2, 2002, MetLife filed a Form U-5 for Jordan in New York City, which accused Jordan of “misrepresentation of client policy values and policy options.” Id. The next day, the NASD began an inquiry into MetLife’s allegations and requested Jordan’s response to the allegations, and on March 14, 2003, the NASD closed the inquiry without taking any action against Jordan. See id. at 10.

Agents vs. Companies

1980s

  • 1985 – LC – Glassman v. Metropolitan Life Ins. Co. –  616 F. Supp. 145 – Dist. Court, ND Illinois, 1985 – [Google Scholar link]
    • … Glassman (Glassman) brought this libel action against his former employer, Metropolitan Life Insurance Company (Metropolitan … We wish to inform you that Mr. Ray Glassman no longer represents Metropolitan …

1990s

  • 1996 – LC – Metropolitan Life Insurance Company v. Haney, Charles G.
    • 14-96-01096-CV
    • Date Filed: 09/06/1996
    • https://search.txcourts.gov/Case.aspx?cn=14-96-01096-CV&coa=coa14
      • 08/11/2014 Case file was destroyed per retention schedule
    • ACLI – AMERICAN COUNCIL OF LIFE INS. – Appellant – Jane Webre, Steve McConnico, Phillip E. Stano
    • 2000 – LR – Deceptive Trade Practices – Consumer Protection Act, by A. Michael Ferrill and Leslie Sara Hyman – 35p
      • In Metropolitan Life Insurance Co. v. Haney,8 a life insurance agent brought DTPA claims against MetLife complaining of inaccurate policy illustrations generated by computer software that MetLife sold to its agents.
      • The Texas Supreme Court revisited this issue in Crown Life Insurance Co. v. Casteel,52 a case involving claims by insurance policyholders against a life insurer and agent and a cross-claim by the agent against the insurer. 
  • 1997 – LC – Casteel v. Crown Life Ins. Co. – 3 SW 3d 582 – Tex: Court of Appeals, 3rd Dist., 1997  —  [BonkNote]
    • This appeal arises out of a lawsuit involving multiple parties with claims and cross claims concerning the sale of life insurance policies to Randall and Sandra Ferguson. Specifically, the issues involved in this appeal pertain to a dispute between appellant William E. Casteel, an insurance agent …
    • 2000 – LC – Crown Life Ins. Co. v. Casteel – 22 SW 3d 378 – Tex: Supreme Court, 2000 – [Google Scholar link]
      • William E. Casteel sold insurance policies as an independent agent of Crown Life Insurance Company.
      • One of the policies sold by Casteel led to a lawsuit by policyholders against Casteel and Crown.
      • In that lawsuit, Casteel filed a cross-claim against Crown. In this appeal from that …

2010s

  • 2xxx– LC – Fairbanks v. Farmers New World Life  —  [BonkNote]
  • 2010 – LC – Maloof v. John HancockLife Ins. Co. –  60 So. 3d 263 – Alabama Supreme Court Opinion  —  [BonkNote]  —  39p
    • Parker A. Glasgow – Agent, and also Policyowner
      • (6-7p) – On April 16, 2008, John Hancock moved the trial court to stay all proceedings pending a ruling from the United States District Court for the Southern District of California on whether the Maloofs’ action was barred by the settlement of a class action overseen by that court in 1998 in which allegedly deceptive sales practices used by Manulife between 1982 and 1993 were challenged;
        • Glasgow subsequently joined in that motion.