Consumer Buying Process

  • Judy Faucett responded that people spend more time buying a microwave than they do an insurance policy.

1994-1, NAIC Proceedings

  • The product is complex and confusing.
  • The following factors must be considered in the rational selection of life insurance:
    • (1) Amount of coverage needed.
    • (2) Understanding of the basic workings of various products, and a rational evaluation of death benefit and savings priorities.
    • (3) Choice between various types of products.
    • (4) Choice between companies-- based on different product features, cost and service.
    • (5) Choice between agents.
  • The purchaser may be unable to make a rational choice for the following reasons.
    • Selection of a suitable amount of insurance is a part of long-term financial planning for contingencies.
      • It is difficult for most people to do such planning.
    • The individual buyer does not really understand the use of the product, and has not defined the need which the insurance will meet.
  • Until the buyer understands how the product works, attempts to compare price are essentially meaningless.
    • ⇒  Further, meaningful price comparisons are difficult to make, and the knowledge and information to make them are usually not available to the consumer.

1972 - SOA - Life Insurance and the Buyer, by Anna Rappaport, Society of Actuaries - 2p-Article

  • 4. Establishing Methodology for Reviewing the Appropriate Time for Delivery of the Guide to Buying Life Insurance After Age 60
    • Mary Alice Bjork (Ore.) agreed that disclosure at the point of application or even delivery was not very helpful.
      • In her experience, most purchasers bought because they had confidence in the agent selling the life insurance.  (p250)

1993-1, NAIC Proceedings

  • (p17) - Chairman Jack  Reed (D-RI):  Let me shift back, again, to Dr. Schwarcz, but if someone has comments, please feel free.
    • You have made the point, I think very articulately, about the opaqueness of the system from the consumer’s perspective.
    • Typically, in my very limited responsibility, you buy insurance based upon two things:
      1. One, either the brand or the company you like,
      2. or the agent who is the Little League coach in your neighborhood.
    • So a lot of what we presume is being done in terms of guiding consumers through this, you know, the solvency of the  company, the appropriateness of product, is being done by the agents.
    • One of the points you make in your testimony is the potential conflict of interest of agents being steered to particular products because of compensation.
      • We saw this dramatically and disastrously in the mortgage broker business.
    • But let me raise the issue specifically about your point about the steering phenomenon, but more importantly the role of the agents.
      • Do they know enough, and it goes back to Dr. Vaughan, et cetera, and are they, in terms of the licensing requirements, have the kind of responsibilities to their clients that would force them, require them to search out some of the information that you think is very opaque. Professor Schwarcz.

2011 0914 - GOV (Senate-Banking/SII) - Emerging Issues in Insurance Regulation, Jack Reed (D-RI)  ---  [BonkNote]

  • JUSTIN N. HORNBURG: Upon reading the model regulation, I think it's going to do an awful lot to educate the consumers as to exactly what it is they're buying. I think in a theoretical way that's a very good thing and in a practical way, also.
    • However, I wonder if anybody has thought about, in their own company or just in general, what the effect on sales of life insurance policies will be.
    • We hear a lot about, "we did some market research and we found that this percent of our policyholders didn't know what it was buying."
    • ⇒  This model regulation will go a long way toward making sure that people do indeed know what they're buying, and I'm just wondering if anybody' s thought about, if they know what they' re about to buy, how many of them will still buy it?
  • MARK J. GREENE: I'd like to take that one step further.
    • What I noticed was there is a requirement for in-force illustrations, and people may have thought they bought one thing and whenever you have to give them an in-force illustration with a current disciplined scale, they're going to realize they bought something else.
    • I think many companies will have serious problems with policyholder retention.

1995 - SOA - Practical Illustrations and Nonforfeiture Values, Society of Actuaries - 14p

  • 2003 0515 - GOV (House) - Retirement Security: What Seniors Need to Know About Protecting Their Futures
    • [PDF-137, VIDEO-?]
    • archives-financialservices.house.gov/archive/hearings216.shtml
    • Paul Kanjorski (D-PA)
      • (p2) - Mr. Chairman, today we will explore the issues that individuals should consider as they plan for retirement.
        • Because investor protection and financial literacy are top priorities for my work on this panel, I am therefore very pleased that we are meeting to examine matters like annuities, life insurance and longterm care insurance, among others.
    • David F. Woods, CEO, National Association of Insurance and Financial Advisors (NAIFA) - Testimony - 21p
      • (p9) - We have 800 local associations across the country representing 325,000 insurance agents, financial advisers and their staffs.
        • Our mission is to provide professional education and support to our members, to establish and to maintain ethical standards for them.
      • (p9) - Let me if I can just give you a very brief overview of the role that  an agent-adviser plays.
      • (p9-10) - And then to do the research, to find the appropriate products that may address those needs, and to bring those needs to their attention; to help them evaluate them; to provide competitive analysis for them, so that they can make an informed and intelligent decision about the products that are important in their lives.
      • (p25) - The other thing is, and Congressman Lucas can attest to this, he pointed out his credentials in the insurance industry, the best teacher of all, the best educator of all is a knowledgeable and qualified life insurance agent.
        • Consumer study after consumer study indicates that that is where people get their information, and they want to get their information from them.