As a member of Insurance Designers of America- I thought it would be good to hear from our Executive Director, Dick Schuettner, as he lobbies NAILBA on our behalf.
To thought leaders and select distributors of the Life Insurance Industry:
Please read on…
Today, we are facing the most serious threat to our beloved life insurance industry in modern times. Our industry is a national treasure, receiving special treatment by our government in order to provide risk shifting and guarantees for American families and businesses that count on our products to protect them during critical life events. As you have probably heard, five large household name, insurance carriers have increased cost of insurance charges on policies that have been in force for some time. Leave aside whether they have the legal or contractual right to do this; the most important issue is the potential harm to the consumers’ confidence in our industry.
Relationships with our clients are built on trust. For generations, we have sold policies that are “trust me” type arrangements where there is a very substantial difference between current projections and that column off to the right called guaranteed. It is incomprehensible to consumers how mortality charges can be increased even though Americans are living longer than they were in the past. Many carriers have assured our clients that the carrier has never increased mortality charges in the past. This understanding shared by the field force has been conveyed to our clients and is an important factor when considering purchasing insurance. For five carriers to breach this understanding is a serious violation of the trust our clients placed with us and the carriers we represent.
Some carriers will point to persistently low-interest rates or lower lapse rates due to the life settlement industry as justification for their actions. At the same time, these carriers are still immensely profitable in both their North American and worldwide operations.
The severe danger is not from these five carriers, rather it is the “lowering of the bar” in terms of treatment of our clients. If we, as leading distributors of life insurance, do not fight back and show these carriers that we vehemently disapprove of their actions, we are tacitly indicating to the other carriers (who have not raised inforce COIs) that there will not be a backlash and that they can raise inforce COIs. This problem must be “nipped in the bud” by those of us who love this industry and want to protect it from the ultimate harm that will follow.
Just imagine what will happen if a sophisticated reporter from a major newspaper was to get a hold of this issue. We can foresee language such as, “broken promises”, “elder abuse” and other equally unflattering statements about us and our industry. If you buy a policy, own it and pay the premium for thirty years, you can wake up one day and find that the policy is no longer affordable, despite paying the premiums and adjusting for changes in interest rates. In other words, even the most responsible policy owners can be blindsided by the products that our carriers have manufactured.
Selling products marketed as guaranteed no-lapse is not the solution. These products are not so guaranteed. If you pay your premium early or late your guarantees can melt down. In effect, the insurance industry has shifted the risk to the consumer and the agent which is contrary to our paradigm.
There are those who would like to vilify the life settlement industry and state that they are the problem. While the life settlement industry has had reputational issues in the past, forty-six of the states have regulated this industry to benefit consumers who live in their states. Behind each life settlement there is a senior citizen who made the decision that they needed the funds during lifetime and for whatever reason, chose a cash settlement instead of a future death benefit. Instead of fighting with life settlement providers, the insurance industry could easily have addressed the needs of seniors themselves and provided living benefits for inforce policy holders. Let’s also not forget that many charities hold substantial amounts of life insurance donated to them by our clients. These cherished causes will now forego any benefit after years of paying premiums.
I know our clients don’t know or care why the carriers are behaving this way. They’re only concerned about the coverage that their family was counting on to provide an education for grandchildren, to protect a surviving spouse or to pay the cost of a funeral. They will not be concerned with “why”.
Insurance carriers need to be worried. A loss of consumer confidence will devastate our ability to sell their products. Consumers could demand only guaranteed type products which, the carriers will tell you, are a drag on their earnings. The rating agencies and stock holders will not be pleased.
We need to voice our concerns immediately. Please join me in contacting our Carriers to express our concerns about these recent actions.
Jack Chiason, please confirm a time at NAILBA when our industry leaders can meet to address this issue.
Insurance Designers of America, L.L.C.