Bait and Switch

Policies that credit higher interest rates in early years and lower rates in later years came in for criticism.
Some characterized such policies as "bait and switch" and thought they should be restricted by regulation or by actuarial standards of practice. (p4)

1993 07 - SOA - ASB Mulls New Standards, The Actuarial Update, Gary Corbett - 8p

2023 0520 - Letter - Barry Flagg / Veralytic to Finseca - 2p
- I regret to have to resign from Finseca … again, for the following reasons.
  - California Best Interest Rule for insurance products (i.e., CA SB 264).
  - Lobbying against Client’s Best Interest rules is lobbying for preservation of current NAIC-based regulations that permit agents, brokers and insurers to “quote” low premiums while charging HIGH costs withOUT disclosing either those HIGH costs nor the HIGHer risks of future “premium calls” for more than the originally “quoted” premium or total loss due to policy lapse even when all originally “quoted” premiums were paid.
  - Such “bait-and-switch” sales and marketing practices foster DIS-trust blocking financial security for all, and continue to divide the financial security profession.
  - This current regulatory regime creates an environment where the reckless get rewarded and the prudent get punished.
  - I likewise believe Client’s Best Interests rules for life insurance are BOTH needed to protect consumers against “bait-and-switch” sales and marketing practices AND will lead to sales growth.
  - Insurance products are the last, largest, most-neglected and worst-performing assets on client’s balance sheets (e.g., WSJ: Universal Life Insurance, a 1980s Sensation, Has Backfired - [link-f]). - [Bonk: by Leslie Scism]
  - Client’s Best Interest rules harmonize the operating principles necessary to enable more financial advisors to have more conversations like this with more customers, resulting in BOTH greater financial security for all AND growth in sales.

Bill White, chief actuary, New Jersey, reported on their special project pertaining to universal life. - <WishList>
Their commissioner, on June 25, 1982, declared an 81-day moratorium on "Universal-Flexible Factor" type of policies.
His staff was directed to
- (1) study the matter and issue a position paper on the subject;
- (2) conduct public hearings on March 10-11;
- (3) terminate the moratorium April 16 with the publishing of a set of guidelines. - <WishList>
Reports and results have been mailed to each insurance department.
Some of the questions New Jersey conveyed included:
- (1) are these policies participating or non-participating;
- (2) the "Bait and Switch" potential;
- (3) disclosure;
- (4) Federal Income Tax aspects;
- (5) non-forfeiture values;
- (6) replacement problems.
The concern was not just with the "twisting" replacements, but was the impact of justified replacements on the solvency of replaced companies.

1982-2, NAIC Proceedings

The Larry Gorski Amendment that was adopted says in-force illustrations cannot be less favorable than sales illustrations or the actuary would have to disclose that;
- the idea is that buyers would be able to find out that a company was utilizing a bait-and-switch strategy in its illustrations

-- William C. Koenig, senior vice president of Northwestern Mutual and the incoming chairperson of the Life Committee of the ASB.

1996 - SOA - Update on Life Insurance Illustrations, Society of Actuaries - 24p

Sheryl Moore (Moore Market Intelligence) said she is concerned that some companies are increasing their insurance charges to subsidize their option budget.
- She said she is also concerned that the practice of playing “bait-and-switch” with renewal rates is becoming more common among universal life products.

2014-3, NAIC Proceedings - Moore Market Intelligence Letter (9-28-14) ................ 6-345