Informed Consumer

  • Tony Spano (ACLI) - The subject we are discussing relates to the broad objective of helping the life insurance consumer make an informed purchase decision.

1988 - SOA - Are Current Illustrations Supportable?, Society of Actuaries - 20p

Idea of the Informed Consumer

  • 3) Have a larger discussion about the disclosure and buying process... 

-- Pat Reeder (ACLI)

2020 0724 - NAIC - Life Insurance Illustrations Working Group (LIIWG) - Conference Call  

Why is an "Informed Consumer" important?

  • Efficient Markets
  • Capital Formation
  • Company Solvency
  • Meeting Consumer Expectations / Retirement Security
  • US Economic Stability
  • Public Relations

Indicators of Uninformed Consumers

  • Lawsuits
  • Complaints to State / Company
  • Extortion - 
    • 2010 - Legal Case - Anthony Digati  - New York Life
  • Media Reports
  • Market Conduct Problems
  • Government Reports / Hearings
  • Consumer Testing / Focus Groups

What aren't Consumers Informed about?

  • Life Insurance / Actuarial
    • Types of Policies
    • Coverage Period/ Plan of Insurance / Performance
    • Non-Guaranteed Elements / Assumptions
    • Premium, Cost of Insurance, Cash Value
    • Surrender Charge
    • Options, guarantees, riders
    • Purpose of Policy
    • Free-Look Period
  • Law
    • Duty to Read
    • Reasonable Person
    • Statute of Limitations
    • Reasonable Reliance

Why is Informed Consumer challenging?

The working group's concern was how to bring about a change without damage to the marketplace.

1993-4, NAIC Proceedings

  • Larry Gorski of the Illinois department mentioned that in states that do not regulate advertising or promotional materials, misleading statements can be rampant in those materials even if the illustrations are made pure.

--  Benjamin J. Bock, Transamerica Occidental

1992 - SOA - Life Insurance Sales Illustrations, Society of Actuaries - 16p

Consumer Testing / Focus Group / Illustrations

  • 1990-1A -  NAIC Proceedings - NAIC LIMRA  - Universal Life Disclosure Form Test Market Results - 10p
  • There is bound to be a controversial element in anything that enlightens the public to these differences and gives them a more intelligent basis for choice than they have at the present time.

--  Ernest J. Moorhead

1981 - SOA -Individual Life Insurance Cost Disclosure Issues, Society of Actuaries - 22p

Why Not?

  • Personal Accountability
  • Contract
  • not my job

WHO?

  • Who could / should Inform Consumers?
    • NAIC (National Association of Insurance Commissioners)
    • ACLI (American Council of Life Insurers)
    • Agents
    • Consumer Educators
  • Who could be blamed for an UnInformed Consumer?

HOW?

WHY? - Why is an "Informed Consumer" important?

  • The most obvious is if we fail policyholder expectations, we may have policyholder suits <lawsuits>.

--  Larry R. Robinson (Chairman of the ACLI Subcommittee on Cost Comparisons)

1988 - SOA - Actuarial Opinion on Non-Guaranteed Elements, Society of Actuaries - 12p

  • Complaints and inquiries related to life insurance and annuity products were less frequent, and generally concerned consumer dissatisfaction with, or confusion regarding Universal Life insurance policies.

2018 - Wisconsin Insurance Report - 219p

  • <Mr. Lovendusky - ACLI> said the ACLI work group thinks that most confusion for consumers involves complex products like Universal Life, and not simple products like term life.
  • He said consumers are mostly confused about options, guarantees and riders. 


2016
0403 - NAIC - Life Insurance Illustrations Working Group, NAIC Proceedings

  • A popular insurance product of the 1980s and 1990s <Universal Life> has come back to bite many older Americans.

2018 - WSJ - Universal Life Insurance, a 1980s Sensation, Has Backfired, Leslie Scism - Wall Street Journal

  • More complex products sold to individual consumers (e.g., Universal Life policies) tend to generate more market conduct problems than simple products (e.g., term life insurance).

2003 0701 - NCOIL - The Path to Reform – The Evolution of Market Conduct Surveillance Regulation - 117p

  • "I would urge the ACLI (American Council of Life Insurers) as a trade organization of carriers that they need to recognize this is a public relations disaster,” he <Richard M. Weber> said. 

2018 - Industry Pressured To Find UL Policy Fix, John Hilton - insurancenewsnet.com - [link]

  • US Economic Stability
  • Capital Formation
  • Capital Markets

We are seeing a real crisis in confidence:
   - That, in my mind, is probably the worst thing that could happen.
   - There is not a company in the country that can stand runs that Commissioner Weaver was talking about, where people ask for $1 billion in policy loans and surrenders in a 2-week period.  (p13)

--  William McCartney, William, Director of Insurance, State of Nebraska and Vice President, National Association of Insurance Commissioners

1991 0729 - GOV (House) - Regulation of Insurance Companies and the Role of The National Association of Insurance Commissioners - [p286p]

WHAT? - What may the Consumer not be Informed about?

  • ..... buyer purchased a policy and did not know what the coverages, benefits and limitations were. 

1988 Proc. II 566.

NAIC - Universal Life Model Regulation, Proceeding Citations, Section 8.  Disclosure Requirements

  • Life insurance, because it is a nontangible product, is extremely susceptible to being perceived as whatever people think it to be.

--  Larry Silkes

1983 - SOA - Universal Life Valuation and NonForfeiture: A Generalized Model,  Shane A. Chalke and Michael Davlin, Society of Actuaries - 72p

  • Also, because most people presume that if you pay your premium continuously, your policy will remain in effect, quite a few people had a hard time understanding how or why the policy would terminate in policy year 31.
  • This was simply foreign to their way of thinking.

1990-1A -  NAIC Proceedings - NAIC LIMRA - Universal Life Disclosure Form Test Market Results - 10p

  • Chalke and Davlin point out that a policy that provides whole life benefits assuming 10 percent interest is not a whole life plan if the guaranteed cash value is only 4 percent.
  • Such a plan is term insurance only for a period of years. 

--  Thomas G. Kabele

1983 - SOA - Universal Life Valuation and NonForfeiture: A Generalized Model,  Shane A. Chalke and Michael Davlin, Society of Actuaries - 72p

As in every other business, an insurance agent's primary enterprise is to sell insurance, a vocation no adult consumer would confuse with a religious order.[12]

 

Concomitantly, a reasonable buyer of insurance (or any other product) must, at peril of caveat emptor, act as a reasonable consumer, e.g., research her needs from multiple sources and price-shop for policies.[13]

1998 - Legal Case -  Weisblatt v. Minnesota Mut. Life Ins. - [Justia.com-link]

WHO? - Who could / should Inform Consumers?

NAIC?

  • If radical changes in the way we illustrate policies were going to be made, they had to start at the NAIC.

-- Frank S. Irish (Actuarial Standards Board)

1996 - SOA - Professional Standards Affecting Life Actuaries, Society of Actuaries - 18p


  • Industry activist Kim O’Brien became the latest to call on the National Association of Insurance Commissioners to intervene during a  conference call this week.

2018 - Industry Pressured To Find UL Policy Fix, John Hilton - insurancenewsnet.com - [link]


  • .....Richard M. Weber, a longtime life insurance agent and executive..... is not looking to regulators to address the UL crisis.

2018 - Industry Pressured To Find UL Policy Fix, John Hilton - insurancenewsnet.com - [link]


  • They are complaints about things that we can’t do anything about because the contract might be a Universal Life type product with Nonguaranteed Elements, and there is no regulatory framework to deal with those issues.
  • Those complaints just fall by the wayside because there is nothing that can be done. 

-- Mr. Gorski <Regulator> 

1996 - SOA - Nonforfeiture Law Development, Society of Actuaries - 23p


  • We want you to know that Financial Education is important, but that many other groups are better situated to design deliver and evaluate education than NAIC is.

2020 01 - NAIC - Retirement Security - Conference Call -  Brenda Cude / Kitt Presentation

ACLI?

  • “I <Richard M. Weber> think ACLI needs to convene its members and say Hey, guys, we need to come up with a solution.’”

2018 - Industry Pressured To Find UL Policy Fix, John Hilton - insurancenewsnet.com - [link]


  • ACLI's ability “to engage on individual policyholder issues with individual life insurance companies is highly limited,” said spokesman Jack Dolan in an email.

2018 - Industry Pressured To Find UL Policy Fix, John Hilton - insurancenewsnet.com - [link]

Agents?

  • Our purpose in commenting today is to emphasize to Working Group members and interested parties the important role that the professional agent plays in the disclosure and consumer education regime that is at the heart of the Working Group’s efforts.

2019 0826 - NAIFA Letter, Gary Sanders - NAIC Life Insurance Illustrations Working Group

  • ...key issue ... perceived by the CLUs and ChFCs responding to the survey as causing the greatest problems for those working in the life insurance industry at the time.
  • #1 - Lack of knowledge or skills to competently perform one's duties.

2011 - JFSP - The Ethical Environment of the Life Insurance Industry: The Impact of the Recession and Slow Recovery. by Robert W. Cooper, PhD and Garry L. Frank, PhD - Journal of Financial Service Professionals - [link]


  • Mr. Wright <Chairman> 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  

Federal Government?

  • Mr. SHAFFER. You argue on page 4 of your testimony that manipulation of the elements of the policy should be controlled by the Regulators.  Yet, you also a the States is inadequate. Why has not the NAIC established a central office to deal with manipulation?
  • Mr. MOORHEAD*. I think that the NAIC people are relying too much on the ability of the buyer to pick a manipulated policy out, and I do not think they should be putting that responsibility on him. I think it is their responsibility.
  • Mr. SHAFFER. Well, if the consumer cannot protect themselves against manipulation and the will not. How should this regulatory problem be resolved?
  • Mr. MOORHEAD. I guess if the consumer cannot and the State will not, the Federal Government would have to.  (p519)

*Mr. E. J. Moorhead, Actuarial Consultant to the NAIC and to the Subcommittee on Anti-Trust and Monopoly of the Judiciary Committee of the United States Senate.

1978 0807/0814/0815- GOV (House) - Life Insurance Marketing and Cost Disclosure - Congressman Moss - [PDF-826p-govinfo.gov-page]

Who? - Who could be blamed for an UnInformed Consumer?

While I agree with Angele <Khachadour> when she says that the insurance industry has failed to communicate, I also agree with the insurance industry's response that these absurd and crazy-quilted policies have been caused in part by the Judiciary.

--  Frederick W. Kilbourne

1981 - SOA - The Life Insurance Business--The View of Consumerists, Society of Actuaries (rsa81v7n38) - Daniel F. Case - Moderator - 18p

Some of our problems, however, have been caused by regulatory bodies

--  Barbara J. Lautzenheiser

1981 - SOA - The Life Insurance Business--The View of Consumerists, Society of Actuaries (rsa81v7n38) - Daniel F. Case - Moderator - 18p

But, insurance regulators and consumerists go off the track when they want to drown the consumer with excessive information. Then it becomes counterproductive because the consumer will not look at it at all. It becomes the
same as junk mail.

It caused many problems for the industry; it caused many problems because the press got involved, and the press doesn't understand the products as well as it thinks it does.

--  Linda M. Lankowski

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

.....there is virtually no accountability for any of the participants in the sale, not for the company, not for the agent, and interestingly, the white paper discussed accountability on the part of the purchaser as well. Accountability is a major issue."

--  Robert E. Wilcox - Chairman of the Life Insurance Disclosure Working Group (NAIC)

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

HOW?

The working group's concern was how to bring about a change without damage to the marketplace.

1993-4, NAIC Proceedings

MEDIA

Linda M. Lankowski:  I think any way that we can make illustrations more understandable to the public is certainly going to help us.

  • We've seen the problems that have occurred when Senator Howard Metzenbaum (D--OH) was given an illustration with a vanishing premium, and he had absolutely no idea that he had bought a policy that was not paid up in four years.

It caused many problems for the industry; it caused many problems because the press got involved, and the press doesn't understand the products as well as it thinks it does.

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

EDUCATION

The educational task is huge, and it's not just with the customers; it's with our agents also.

  • I would say to all of you that if you think that you don't have any customers or any agents who fail to understand what a nonguaranteed illustration really means, you're kidding yourself. 

 -- Walter Miller

1991 - SOA - Illustrations, Society of Actuaries - 20p

If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.

Obviously, there are two adjustment points whereby that can be accomplished.
-<1> ...change the outcome to match the expectations.
-<2> ...change the expectation to match the outcome.

--  Robert E. Wilcox - Chairman of the Life Disclosure Working Group (NAIC),

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

Monitoring of litigation may alert regulators to issues that the regulatory system has not yet addressed. 

2008-3, NAIC Proc

LAW

Words and Concepts 

  • Duties - Duty to Speak, Duty to Read
  • On Notice
  • Puffery
  • Reasonable Person / Reasonableness / Reasonable Expectations 
  • Reliance - Justifiable, Reasonable 
  • Statute of Limitations