POLICY PUSHERS’ GOOD HOUSEKEEPING SEAL: CONSUMER ADVOCATES FEAR IT’S JUST A FOOT IN DOOR TO SWEEP INSURER ABUSES UNDER RUG

Forget your preconceived notions of life insurance salesmen. With a nod to Good Housekeeping magazine, by April 1, a self-regulatory body created by the insurance industry plans to declare the selling practices of more than 100 life and annuity companies “ethically fit” and firms will be able to advertise the approval.

But there may be cracks in the seal, which is awarded by the Insurance Marketplace Standards Association, a group bankrolled by the American Council of Life Insurance, based in Washington.

First, consumer watchdogs warn of potential conflicts of interest by those doing the assessments. That’s because the assessor may be a service provider, but not an employee, of the insurance company.

In addition, regulators think the certification should be renewed more often than every three years.

Finally, small firms who could use such an audit may be shut out because of the time and costs involved – up to $250,000 in assessment fees.

The grade, which is pass-fail, will be used by firms representing half of sales of life insurance products in the United States, association officials say.

The Imsa concept was born in late 1996 when insurance company chief executive officers, including current association chairman Joseph E. Blair Jr. of the Owings Mills, Md.-based Baltimore Life Insurance Co., approached the American Council of Life Insurance to address the industry’s declining image and well-publicized lawsuits over sales practices.

“If the industry wasn’t going to do something about the conduct of the rogue agents, somebody else would,” Mr. Blair says. “We had a moral obligation to develop an ethics program.”

Association spokesmen say it doesn’t pocket any fees from the mark, at least not yet. But the group is working on a registered trademark. Its annual budget, estimated at under $500,000, comes from the council, but it hopes to become a separate body down the road, says Robert R. Googins, its executive director and former commissioner of insurance for C
onnecticut.

In the review process, companies first conduct a self-assessment. They must comply with more than 160 procedures regarding marketing and sales conduct in order to move to the next step: choosing one of the 150 assessors approved to inspect the company. The insurance council estimates that insurers will pay from $7,500 to more than $250,000 – negotiated with the assessor – depending on the company’s size and level of “ethical fitness.”

Consumer watchdogs appreciate the effort made by the industry, but they’re still not sure it will be enough to counter years of abuse by some insurance agents.

“I think the jury is still out,” says Joel Ario, manager of consumer protection for the Oregon Insurance Division. “There still are a number of concerns on the regulatory side.”

First, the association doesn’t require the insurance company to have an arm’s-length relationship with the independent assessor, Mr. Ario says. While the assessor can’t be an employee of the company, he or she may, for instance, be an outside lawyer for the insurer.

Imsa does, however, require that insurers disclose whether their assessors have worked for them in any capacity in the preceding two years, says Don Walters, the group’s deputy director.

Honesty in marketing!

Next, because the mark only covers marketing standards, it may give consumers a false sense of security, Mr. Ario asserts, because it doesn’t cover claims handling and underwriting.

Mr. Ario also has a problem with the three-year endorsement. Indeed, if a state fines the company for sales and marketing abuses a year after it has become certified, it would still be able to use the mark in its advertising materials, Mr. Walters acknowledges.

That’s because the association is made up of competing companies, and any move made against a fellow insurer could be seen as an antitrust violation, Mr. Walters says. The group’s board is wrestling with the issue, he adds.

Jim Hunt, insurance specialist for the Washington-based Consumer
Federation of America, says certification is a step in the right direction.

“I don’t think it’s just a case of there being a few bad (agents) in the bunch,” Mr. Hunt says. “I think it’s broader than that. The companies themselves have contributed to it.”

The association’s examination process was finalized last April. Assessments have occurred for months, but insurers agreed not to announce if they were certified until April 1 this year. The life insurance council, which is overseeing Imsa, didn’t want one company to have an unfair advantage because its certification was approved sooner. At presstime, 41 life insurance and annuity companies had been certified. The bulk of the predicted 100 or so companies are expected to submit their applications before the April 1 deadline, Mr. Googins says.

Do unto others…

According to the association’s six broad principles, insurers must:

conduct business according to high standards of honesty and fairness to render services to customers which, under the same circumstances, they would demand for themselves;

offer competent and customer-focused sales and services;

engage in active and fair competition;

provide clear and honest advertising and sales materials;

provide fair and expeditious handling of customer complaints;

maintain a system of supervision.

Not everyone will line up to be certified. Certification assessor and certified life underwriter Dick Weber of The Ethical Edge, an adviser in Safety Harbor, Fla., says cost will be a barrier.

And some companies won’t want to assemble all their marketing materials so lawyers for disgruntled customers can have swift access to the information.

“I have heard several companies say they don’t want to make a litigation attorney’s job easier,” Mr. Weber says. “Even the most ethical company might feel this way.”

But some say the self-assessment process puts the onus for compliance on the insurance company, which is where it belongs. Mandell Winter, senior academic f
or the Denver-based National Endowment for Financial Education, a nonprofit institution that advocates standards for financial advisers, says: “In the past some companies permitted their agents to do things that weren’t above board.”

“Imsa says this is what the company is doing, not just what they say they’re doing,” says Mr. Winter, who’s a chartered life underwriter.

While applauding the new standards, financial planner, Lydia Sheckels, also a chartered life underwriter, says clients still should look at long-term issues, such as the financial stability of the insurer, before buying a life policy.

“Customers need to do a little more due diligence about the company,” says Ms. Sheckels, chief investment officer of Philadelphia-based Westcott Financial Planning Co. Inc. “No regulatory body can do this for you.”