Trade Practices

  • Equal to the need for financially sound insurance products is the need for socially responsive insurance companies.
    • Consumers are not well served by a company that meets statutory reserve requirements but engages in unacceptable or morally-barren trade practices any more than they are served by companies that offer them pie-in-the-sky policies backed by assets worth no more than the paper on which they are written.
    • Therefore, the issues brought to the NAIC should not be so narrow as to overlook the relationship of product service and product soundness.
    • Both elements need to be balanced as decisions are made in a changing industry.

—  Lymcon L. Olson, Jr., NAIC Presidential Address

1983-1, NAIC Proc.

Bad Apples

  • The easiest way for a large corporation to respond to allegations of fraud or dishonesty is to suggest that there are a few ‘bad apples’ in every organization, but that the company’s policies and practices are honest.
  • Life insurance companies, however, would have a hard time making this argument.
  • A practice, referred to in some locations as ‘misselling’ of insurance policies – “violating industry rules, guidelines and codes of ethics, if not the law” – occurs quite regularly.These practices involve “institutionally endorsed manipulation, deception and sometimes fraud” (p. 994).
  • [Bonk: 2006 – AP -The Institutionalization of Deceptive Sales in Life Insurance. Richard V. Ericson and Aaron Doyle, British Journal of Criminology, Vol. 46, Issue 6, p993-1010]

2007 01 – Criminological Highlights – p.4 – Deceptive sales practices in the life insurance business have become part of ‘normal business’: sales agents are taught by companies how to be deceptive and not get caught., Volume 8, Number 4 – 12p

2024 1025 – LIFE180 – MPI Cease and Desist Order: Is MPI Dead? ATTORNEY REVIEW – [Robert Rikard] – [VIDEO-YouTube-01:11:39]

  • investorloss
  • agent depositions
  • 7 – company training material for agents
  • tax-free income that only the wealthy know
  • liquidate 401ks, etc.
  • savings account, bond alternative
  • morality = Life Insurance Companies
  • partiipating company – dividends – consumers participate in the profits of company
  • 10 – AG-49 – chasing capone
  • 11 – Curtis Ray – MPI – Wahington
  • diversification
  • whole life is exactly what you pay for
  • don’t put all your money into an iul
  • different suitability rules
  • iul challenge
  • iuls are never going to perform the way they are sold
  • policy values declining – math doesn’t work
  • 15 – creating law around the country
  • 15 – Curtis Ray – MPI – Wahington – Cease and Desist
  • P7 – mpi – retirement plan – 67 videos
  • 18 – chris took curtis put to lunch
  • insurance agents calling themselves something else
  • fiduciary
  • best interest – not ira or 401k to life insurance
  • fiduciaries — some of worst cases rias
  • big boys dont sell iuls, wont get through compliance
  • 22 – premium financing lawsuit
  • not ira or 401k to life insurance
  • 24 – compliance there to proect company, agents, not clients
  • commissions, imos, target premium, customer complains, lower death benefit, tax-free retirement income
  • people find out too late
  • run reprojection
  • urtis Ray – MPI – Wahington – insurance agent complained – nothing proprietary about mpi, they are just iul policies – secrect 
  • P6 – 
  • iul vs traditional ul – options budget – cap – call options – 
  • 32 – agent knowledge – deposition – options strategy  regulations – securities license – iul very complicated – 150 pages to explain it
  • sold as a simple solution – very complicated – active management – 
  • there is no management
  • all the risk onto the policyholder
  • P7 – 67 videos – Retirement Plan –
    • p3 – 
  • universal life
  • :wholistic” – ira, 401k
  • most power in the relationship = companies
  • lobbyists, 
  • not going to win in front of congress
  • courthouse – all of the same reason
  • uncle sam – partner in your pocket
  • tax planner, cpa
  • 41 – lawsuit – 71 yo sold tax-free inx=come
  • doug andrew – 100 lawsuits in utah
  • 43 – fantastic salesman – doug isnt licensed – “doug andrew” “utah securities commission” “investor 
  • doug andrew – mathematically wont work – wrong – misrepresentation
  • chris – he knows what hes doing
  • hope they will work
  • 45 – case
  • massive front-end commission
  • wl vs iul – commissions
  • P9-10 – 
  • 48 – curtis sent chris cease and desist orders
  • 401k to iul – loan to pay taxes –
  • cost of insurance – example – annual statement – 
  •  policy loan to buy another policy?
  • reloc – 
  • 52 – arbitrage, blowup – hyperfunding – companies dont let this happen- curtis knows exactly what hes doing.- or hes negligent – Mutual of Omaha is even worse – fiduciary – gives curtis home office assistant  
  • 5-pay or 7-pay 10-pay = represented as fully funded – not fully funded – big commissions  [Bonk: Paid Up]
  • in-force illustrations – year 6-7  -guaranteed cash value = zero
  • 57 – vanishing premium, iul can never be paid up – [Bonk: Corrider] – shrink the corrider – costs neglible – surrender periods
  • lapse notice – affinity fraud – inforce illustration – [Bonk: P1P2] – call the agent
  • 100 – p5 P16 – Retirement Plan – Investment – 
  • Congress – then customers would be told what iul really is – change vovernight
  • P32 –
  •  104 – people losing their life savings
  • Companies
    • MPI, WFG, PHP, GFI, FLEX-METHOD, Doug Andrew
  • Expectations
  • Doug and Curtis very church going individuals

2020s – NAIC – Insurance Commissioners – Snippets

  • 2020 0107 – WSJ – It’s the Hottest Thing in Life Insurance. Are Buyers Aware of the Risks? Regulators worry insurers are underplaying the dangers of a product tied to the performance of the U.S. stock market, by Leslie Scism – [link]
    • ⇒ One concern is that existing consumer materials “can lead to unrealistic expectations,” said Fred Andersen, an actuary with the Minnesota Department of Insurance who is a leader in the effort at the National Association of Insurance Commissioners.
    • Paul Graham, chief actuary with trade group American Council of Life Insurers, said the industry supports development of materials and disclosures that help consumers “make the right decisions,” though “we do have different views amongst our companies as to how to best accomplish that on rather complex IUL products.”
    • Some regulators and advisers fear indexed universal life will offer a repeat of what many consumers experienced with a policy known as basic universal life.
      • Those policies were a sensation in the 1980s when U.S. interest rates were in double digits.

Anti-Trust

  • When I read the program information, I was struck by the antitrust disclaimer that we have at the front of the program.
    • I want to read that disclaimer to you.
      • It says, “Under no circumstances shall meetings or programs be used as a forum for representatives of competing companies and/or firms to reach any understanding whatsoever either about the pricing of specific products, whether particular products should be marketed to the public, or terms on which products are marketed.”
      • That sounds to me like some of the things that are built into and implicit in the illustration model regulation.

—  Kevin A. Marti, vice president of administration and chief actuary for Westfield Life Insurance Company

1995 – SOA – Sales Illustrations, Society of Actuaries – 14p

DSSRC – Direct Selling Self-Regulatory Council

  • bbbprograms.org/programs/all-programs/dssrc
    • DSSRC was established in 2019 to proactively monitor the marketplace and enforce program standards to promote truth and transparency in the growing direct-selling industry, including on social media platforms.
    • The Direct Selling Self-Regulatory Council (DSSRC) provides impartial monitoring, enforcement, and dispute resolution regarding product claims or income representations (including lifestyle claims) disseminated by direct selling companies and their sales force members. This program provides a robust challenge process that also includes the opportunity for a company to appeal a decision.
    • What is your relationship with DSA?
      • The Direct Selling Association (DSA) provides funding for DSSRC. However, substantively, DSSRC operates autonomously from DSA.  

1996 – Report of The Multi-State Life Insurance Task Force and Multi-State Market Conduct Examination of The Prudential Insurance Company of America – 270p

  • 1996 – Report of The Multi-State Life Insurance Task Force and Multi-State Market Conduct Examination of The Prudential Insurance Company of America  —  [BonkNote]  —  270p
  • (p8) – 33 percent of the sales complaints concerned misrepresentation by agents in the course of a sale.
    • (p12) – Such complaints were not new, but due to recent media attention and other factors, have been received and handled in large numbers. 
  • (p) – There is ample evidence to suggest that many of the practices at Prudential are, or were, present at other life insurers.

Lapse Rate

  • (Senator Cannon) The CHAIRMAN:  So that the first 13 months is the highest?
  • FTC – Mr. LYNCH: The 13-months-lapse rate is typically the highest, and it’s about 20 percent or so.

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote] 

  • I think, overall the data reflect that too many consumers are making a hasty purchase and then just dropping their policies-up to 20 percent in 1976, and double the rate of 1951.
    • Considering the fact that Consumer do not get good cost information, we could hardly say that it was due to the fact that they are discovering lower cost policies.
    • I have seen no one claim that that is the reason for the increase in the termination rate.

—  Lee Richardson, Acting Director, U.S. Office of Consumer Affairs, Department of Health, Education, and Welfare

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote] 

  • The experience of most companies shows that about one half of the policies lapse within ten years from the date of their issue; and probably not more than one-quarter of the policies issued in any year will be in force at the end of twenty years.

—  (p175) – Letter – From E. W. Peet, Secretary of the National Life Insurance Company of the United States To the Committee of the National Insurance Convention, having in charge the rate of mortality and rate of interest for the calculation of premiums, net valuation

1871-1, NAIC Proceedings, (fka National Insurance Convention)  —  [BonkNote]  —  233p

  • 1951 – SOA – Lapse Rates, by Charles F.B. Richardson and John M. Hartwell, Society of Actuaries – 59p
  • 1959 – SOA – Ordinary Insurance and Annuities: Withdrawal Rates, tsa59v11n30ab49 – Society of Actuaries – 5p
    • What has been the trend of lapse rates in recent years? How do lapse rates vary by plan of insurance, by age at issue, by sex, by frequency of premium payment, and by geographical area?
  • (p13) – Michael Pertschuk, Chairman, FTC, Federal Trade Commission. Actually, the vast majority of policyholders do surrender those policies. I think the staff report does expose the figures. But I think that at one point, after 15 years, as I recall, 32 times as many policyholders will have surrendered as terminated through death. So it is a fair measure.
  • Howard Cannon (D-NV), Chairman – Is there a median point that the staff has found? Let’s say an average point at which the policies are surrendered?
  • Michael Pertschuk, Chairman, FTC, Federal Trade Commission. Twenty years-Mike, why don’t you answer.
  • Michael Lynch, Bureau of Economics –  It’s return rates that stabilize after about 20 years. As for lapse rates, they peak in the very first year. The very highest lapse rate is in the first 13 months. The next year typically has a higher lapse rate as well. Thereafter, they continually decline.
  • Howard Cannon (D-NV), Chairman – So that the first 13 months is the highest?
  • Michael Lynch, Bureau of Economics – The 13-months-lapse rate is typically the highest, and it’s about 20 percent or so.

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote]  —   [PDF-592p]

  • 1960 – SOA – First Year Lapse Rate, by Norman F. Buck, tsa60v12n3331 – Society of Actuaries – 57p
    • Since lapses will probably always be with us, it behooves us to try to minimize or postpone them or adjust to them as best we can.
    • To these ends this paper presents results based on a new study and perhaps offers some new ideas on the subject. 
    • It has been almost nine years since C. F. B. Richardson and J. M. Hartwell presented to the Society their excellent paper on “Lapse Rates” (TSA III, 338). – [Bonk: 1951 – SOA – Lapse Rates, by Charles F.B. Richardson and John M. Hartwell, Society of Actuaries – 59p]
      • They included an extensive list up to that date of published works on the subject.
    • Since then the Life Insurance Agency Management Association has published a number of reports on lapses but little has appeared regarding them in the Transactions.
  • Financed Insurance
    • A. What lapse experience has developed on business financed at or near issue through either policy or bank loans?
    • B. Is the amount of such financed business increasing or decreasing and, if so, why? What measures have been taken to limit the amount of such business and what are their merits and demerits?
    • C. To what extent is the exercise of the Fifth Dividend Option in practice being confined to policyholders interested in minimum deposit policies, and why?

1961 – SOA – Individual Life Insurance: Financed Insurance, tsa61v13pt2d49 – Society of Actuaries – 5p

Orderly Resolution Authority

  • AIG’s problems “highlight the need for a resolution authority with the power to manage the orderly restructuring of a large, complex, non-bank financial institution that poses a threat to the stability of our financial system,” Geithner said.

2009 0324 – ThinkAdvisor – Geithner To Ask For More Powers, By Arthur D. Postal – [link] 

  • (p7) – Joseph TORTI, NAIC, Deputy Director and Superintendent of Insurance and Banking, Rhode Island Department of Business Regulation:
    • I hope I understand your question. Are you saying as a result of the Dodd-Frank changes that have been made, what would be done differently?
  • Al GREEN (D-TX) – How would the States respond to the FDIC handling exigent circumstances comparable to AIG during the financial crisis?
  • Mr. TORTI. The traditional way that we would handle that type of thing is we try to create a wall around the insurance entity to protect the insurance entity and the insurance entity’s policyholders from those circumstances so that the insurance policyholders and claimants aren’t made to pay for the problems outside the insurance entity.
    • That is normally the way that we protect an insurance entity in a receivership situation.
    • So if there were a holding company issue or a significant affiliate outside of the insurance entity that had financial difficulties, we would protect the insurer from those financial difficulties through the current receivership laws that we have in all the States.
  • Mr. GREEN. In essence, are you saying that you would be able to work within the confines of Dodd-Frank and with the FDIC so as to perfect an orderly liquidation?
  • Mr. TORTI. We really hope we don’t end up in that situation again.
  • Mr. GREEN. Obviously, yes, I concur.
  • Mr. TORTI. But, yes, we believe we should be able to work with the FDIC.
    • We are hopeful that we will be able to work with the FDIC.
    • We have a very good relationship with the FDIC.
    • The FDIC has acknowledged that protection of the policyholders and claimants of the insurance entity is of utmost importance to us, and we believe that we should be able to work with them on that type of circumstance.
  • Mr. GREEN. Are there any technical changes to the draft we have that you would recommend to help to facilitate this?
  • Mr. TORTI. I can’t think of any technical changes that I would offer to the current draft that you have, no.

2011 1116 – GOV (House) – Insurance Oversight and Legislative Proposals, Judy Biggert (R-IL) – [PDF-131p – VIDEO-?]

MVA – Market Value Accounting

  • 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

  • 1992 – SOA – A Market-Value Accounting Framework for Insurance Companies, by Mark W. Griffin, The Financial Reporter, no. 15 (March):1-2, 1992, [letter to editor], FR, 5/92, p. 20 – Society of Actuaries 
  • 1993 – SOA – A Market Value Balance Sheet: Why and How, by M. C. Modisett, arch93v126 – Society of Actuaries – 14p