1993 0525 - GOV (Senate) - When Will Policyholders Be Given The Truth About Life Insurance?

  • 1993 0525 - GOV (Senate) - When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  ---  [BonkNote]
    • [PDF-354p  - VIDEO-?] 
    • Agent - Jerry Keating - John Hancock
    • NAIC - David Lyons - NAIC, Iowa Insurance Commissioner
    • Policyholder - Gloria Darleen Newberry
    • Senate - Committee on The Judiciary - Subcommittee on Antitrust, Monopolies and Business Rights
    • [Bonk: Current (as of 2023) President Joe Biden chaired the Senate Judiciary Committee from 1987 to 1995]
  • (p1) - Senator METZENBAUM.
    • Almost 1 year ago, I chaired a hearing in this room looking at sales practices in the life insurance industry.
      • That hearing did not make the network news and was not broadcast by C-SPAN.
      • Put bluntly, it was a pretty dull hearing.
  • (p4) - Statement of Hon. Charles E. Grassley (R-IA)
    • I share Senator Metzenbaum's desire to ensure that insurance consumers have a thorough understanding of the obligations and performances that they can expect from a prospective life insurance policy, so that they can make fully informed purchase and investment decisions.
    • Last year's hearing certainly drew a great deal of attention to this issue, and I know that as a consequence many Iowans have become more alert to the potential for misunderstanding that exists in this area.
    • I am going to divide my time between the Aging Committee upstairs on the sixth floor and this committee. So, when time comes for me to ask questions, I am going to have my staff come up and get me.
      • We are also involved in an investment hearing in the Aging Committee.
        • It involves the investment problems of senior citizens who, with lower interest rates on their CD's, are not having the income that they were planning on having.
      • So today is kind of a day of investment hearings on the Senate side
  • (p4-5) - Statement of StromThurmond (R-SC)
    • This subcommittee held a hearing on this issue on June 23, 1992. The issue of adequate disclosure of the important elements of life insurance policies apparently has become a matter of growing concern not because of substantial changes in the operations of insurers, but because of the sharp decline in interest rates and other investments on which much of the value of these insurance policies depends.
    • These changes in the market have added new difficulties for insurers and greatly increased the importance of consumers understanding clearly the variables which affect the policies.
    • Mr. Chairman, although you and I differ on many issues relating to the insurance industry—for example, the wisdom of substituting Federal regulation for State regulation—we do not differ on the importance of fairness to consumers.
    • Many consumers need to be better educated and have available clear information about the complex insurance products they are purchasing. The hearing this morning will help to educate us about these issues and to raise public awareness so that consumers will become more knowledgeable.
    • The National Association of Insurance Commissioners plays an important role in protecting consumers by providing model legislation for enactment and enforcement by the States. Model laws encourage desirable similarities in State legislation while preserving the important and traditional role of States in regulating insurance.
    • The insurance industry is an essential part of our economy. Most individuals and almost every business depend on the financial protection afforded by insurance. Obviously, there is no justification for questionable activities which, at a minimum, erode the very consumer confidence that is vital for a healthy insurance industry.
    • At the same time, the insurance industry should not be blamed for low interest rates and market uncertainties which have raised much of the concern with life insurance policies.
  • (p187) - Senator Chuck GRASSLEY (R-IA) - Generally speaking, what has been the experience in the State of Iowa with regard to the problems of consumer disclosure of life insurance?
  • David Lyons, NAIC / Iowa Insurance Commissioner - If I can be generic, we have had two major problems.
    • The first is a very specific problem, and that is the changing in the interest rates.
    • We have seen a large upsweep in the number of complaints exactly on point to the testimony that we have heard here today relating to the change in dividends and interest structures.
    • So we have had a lot of work to do in the area of determining whether there were intentional misstatements.
      • In that case, there are civil and administrative actions taken by us and criminal prosecutions referred on.
      • If there is an unintentional, yet identifiable, misleading statement made to consumers, then there is administrative action taken to put the consumer into the position they should have been under the information that was disclosed to them. 
  • Senate - Subcommittee on Antitrust, Monopolies and Business Rights
    • Howard M. Metzenbaum, Chairman (D-OH)
    • Dennis Deconcini (D-AZ)
    • Orrin G. Hatch (R-UT)
    • Howell Heflin, Alabama
    • Paul Simon, Illinois
    • Strom Thurmond, South Carolina
    • Arlen Specter, Pennsylvana
  • Others
    • David Lyons - NAIC / Iowa Insurance Commissioner
    • Jerry Keating -Agent - John Hancock Mutual Life Insurance Co.
    • Gloria Darleen Newberry - Consumer
    • Mark Rakich - California Department of Insurance, on behalf of Commissioner Garamendi from California
  • Committee On The Judiciary
    • Joseph R. Biden, Jr. , Delaware, Chairman
    • Edward M. Kennedy, Massachusetts
    • Howard M. Metzenbaum, Ohio
    • Dennis Deconcini, Arizona
    • Patrick J. Leahy, Vermont
    • Howell Heflin, Alabama
    • Paul Simon, Illinois
    • Herbert Kohl, Wisconsin
    • Dianne Feinstein, California
    • Carol Moseley-Braun, Illinois
    • Orrin G. Hatch, Utah
    • Strom Thurmond, South Carolina
    • Alan K. Simpson, Wyoming
    • Charles E. Grassley, Iowa
    • Arlen Specter, Pennsylvania
    • Hank Brown, Colorado
    • William S. Cohen, Maine
    • Larry Pressler, South Dakota
  • (p196) - Overwhelming numbers of Life Insurance buyers do not even understand which, if any, elements of their sales illustrations are guaranteed.
  • For instance, as we demonstrated in our hearing, an Alexander Hamilton illustration did not make it clear that there was no guaranteed death benefit after 12 years.

--  Senator Howard Metzenbaum (D-OH), Letter to the NAIC

  • The agent said that Universal Life policy premiums would stay the same, but I came to realize that this is not true of our policies.
    • ...what bothers me is that I am afraid that this same misleading information may be the basis of my children's and grandchildren's ... planning...  (p13)

--  Statement of Gloria Darleen Newberry, Policyholder

  • (p3) - Senator Metzenbaum: What nobody seems to want to tell people is that no one knows exactly how long it will take to build up enough cash value to pay the remaining premiums.
    • They do not know, so they guess.
    • And as long as they are making up facts, they make them sound real good.
  • Companies say: After 5 years, there will be enough in your cash value for you to stop paying premiums forever, or your money will earn at 10 percent, or your premium will never be more than $7.00 per thousand dollars of insurance.
  • And very quietly, maybe hidden in a footnote or in a gobbledygook phrase, they say: Well, we are really only guessing.
  • They never say: We do not have any idea how much you will eventually have to pay for policyholder.  
  • (p4) - Senator Howard Metzenbaum (D-OH):
    • So, two national organizations of agents publicly acknowledged to the NAIC the problems we uncovered in last year's hearing.
      • But they, like the companies they represent, are unwilling to face the pubic.
    • In addition, the ACLI, the national trade association for life insurance companies, refused to testify last year and refused to come today.
      • I consider their actions reprehensible and irresponsible.
    • The refusal of the companies and the agents to participate in today's hearing leads me to think they have something to hide.
    • This Senator thinks they do have something to hide. I think the life insurance industry is really not willing to stand behind its product.
    • I do not think they are that proud of what they are doing, and that is the reason they are not here today.
    • And I think it is fair to say that the people who bought cash value policies since the early 1980's have already had or are about to have rude awakenings.
      • Soon they will realize projections made when they bought their policies do not have a snowball's chance in August of coming true.
    • Today we will see what can be done about it.
  • (p21) - Senator Howard Metzenbaum (D-OH)
  • At a recent meeting of underwriters, Thomas Wheeler, a chief executive officer of Massachusetts Mutual, said in the last decade:
    •  "Some companies encourage churning", meaning rolling over whole life business into universal life.
    • Not only did these companies swap high-margin products for low-margin ones, they often incurred additional acquisition costs.
    • Do you agree with Mr. Wheeler's remarks?
  • Mel TODD. Yes, I do.
  • (p33) - NAIC - Statement of David Lyons, Iowa Insurance Commissioner (IA), On Behalf of the National Association of Insurance Commissioners 
  • I appreciate this opportunity to appear before the subcommittee. You have been kind enough to make us aware of your concerns in the area of consumer disclosure for life insurance consumers. It is clear that we share a common concern, and that truly is a common concern—consumer protection.
    • Each and every State insurance regulator lives by these words day-in and day-out: Consumer protection is our job.
    • ⇒  Informed consumers are the cornerstone of effective consumer protection.
      • This is particularly true in relation to life insurance with its proliferation of complex products over the past decade.
  • And, Mr. Chairman, as they say in baseball—and I understand you have an interest in baseball these days—you cannot tell the players without a scorecard?
    • Well, it is far too easy for consumers these days to lose track of balls and strikes on how their insurance product works for them, and that is leading to the type of problems we have heard about this morning.
  • I also serve, as you noted, as the chairman of the NAIC's Life Insurance Committee, which has jurisdiction over several insurance consumer disclosure issues including life policy illustrations, which has been the subject of a lot of discussion this morning.
    • Access to information is the true key.
    • The NAIC has long been working to improve the availability and quality of information consumers receive.
  • (p34) - A buyer's guide was added in 1976.
    • Thirty-two States now require that it be provided to consumers during the sale of insurance.
    • In 1983, it was upgraded to include information on universal life and other new developments in the insurance world.
    • As new products were introduced to the marketplace, new needs for consumer protection arose.
      • So in June 1989, our life insurance committee adopted disclosure statements to help consumers compare different types of interest-sensitive products.
      • The forms were then tested with consumers, and revisions were made in December 1989 based upon that consumer input.
      • These disclosure forms were then added to the NAIC universal life model  regulation.
  • (p34) - As with all areas of insurance regulation, however, our focus is not on what we did yesterday; it is on what we will do tomorrow.
  • (p34) - In addition, I hope this hearing itself sheds light, a spotlight, on the issue to encourage the States to focus greater attention on adopting the consumer protection measures which have already been developed by the NAIC.
  • (p34) - Giving consumers clear, relevant, and complete information plays an important role in any market, particularly in one as complex as insurance, and it is extra complex in the area of life insurance.
    • The NAIC has long recognized this fact, and I think our record reveals our commitment to consumer information.
  • Mark Rakich, California Department of Insurance
    • (p32) - Metzenbaum: ...here on behalf of Commissioner Garamendi from California, and I do not think there is any commissioner in the country who is trying harder to protect the policyholders of this country.
    • (p170- ) Statement of Mark Rakich
  • (p15) - Jerry Keating, Agent - I began my career with John Hancock Mutual Life Insurance Co. in 1965.
    • From 1982 to June 12, 1990, I was the staff manager in the Sioux City, LA, office.
    • My job during this period was to office train and field train new and veteran agents.
    • I am still employed by the John Hancock ...
    • I would like to know exactly, what guarantees do I have from this committee that I will not be harassed?
  • Howard Metzenbaum (D-OH) - We cannot guarantee any position.
    • But I would guess that my colleague here from South Carolina and this Senator and I think every member of this Senate would be so outraged at John Hancock if they took any action against you for testifying before a Senate committee that they would find our wrath unlimited and that we would take every step possible to protect your position.
    • I think the Senator from South Carolina, with whom I disagree on some issues, but I think he would agree that no witness ought to ever be penalized for appearing before a Senate committee.
      • And this gentleman is asking whether or not—what guarantee does he have that he will not be terminated from his employment just by reason of his appearing here. Do I reflect the Senator's view as well?
  • Strom Thurmond (R-SC) - Yes, you do.
  • Howard Metzenbaum (D-OH) -  Thank you. Mr. Keating, please proceed.
  • (p16) - Mr. Keating: I began my career with John Hancock Mutual Life Insurance Co.in 1965.
    • From 1982 to June 12, 1990, I was the staff manager in the Sioux City, LA, office.
    • During the first years of my employment, everything that I heard from the John Hancock home office turned out to be true, correct, just like we were told.
  • Sometime in the early 1980's, we began selling a product called variable life insurance.
    • Every day we received information on the home office computer with glowing account facts on how much these accounts were earning—25, 30, and 35 percent interest.
    • This information was shown to new prospects to get them to buy variable life insurance.
    • Also, these contracts required no premiums after 5 years.
    • We sold these variable life policies by the hundreds.
    • In fact, our Sioux City office was one of the leaders in the company.
  • (p17) - Several times the other people in our office and I went to meetings where we were told nothing about the risks involved in buying this product, just how much the insured would make.
  • I personally wrote two VLI contracts on Ivan Ammar in Randolf, NE.
    • He is the minister at the Lutheran Church there.
      • He bought these policies for his retirement.
    • The computer sheets showing the amount of his retirement benefits were fantastic.
    • He paid for years, but had to drop his policies when he found out he would have to continue paying premiums after retirement.
  • ...another. Jeanette Keating, my wife, another. Holly Keating, my daughter, another. Jerry Eike, my son-in-law, another. Terry Eike, my daughter, another. Larry Eike, Jerry's brother, another.
  • (p18) - The training we received was sales training only.
    • The home office people who came to the Sioux City, lA, office said: Don't try to become a Ph.D. in variable life insurance; just learn enough to sell it and go.
    • This is what they told the whole office, and this was how I trained any new men that I hired:
      • Just sell it; do not worry about it.
    • Just before I got sick in 1990, the company seemed to change.
      • They started telling us about the risks.
  • This statement is only the tip of the problem.
    • There are hundred and hundreds more.
    • And, Senator Metzenbaum, I would like to tell you, sir, if you do not get the Government to do something about this, you haven't seen nothing yet. 
  • (p21) - Howard Metzenbaum (D-OH)
    • You thought the replacement policy was guaranteed to cost you a level amount each year, but later realized the premium could change.
    • Now were you not told exactly what was guaranteed and what was subject to change about the replacement policy?
  • Gloria NEWBERRY - Consumer / Policyholder - Parkville, MO
    • No, sir. We were told that our premiums would remain the same.
    • At the time the policy came, I, like most consumers, I feel, put the policy away in the safe.
    • I did not even look at it, because it had been explained upfront at the time I purchased it, I thought, what would happen.
    • It was only at a later date that I pulled it out of the safe and started studying it and realized that none of what I had been told was true.