Breadwinners' Insurance

ii The Insurance Forum, Vol. 21. No.8. Please note: These endnotes are provided for various purposes, but are not intended as complete, academic quality references.

iii “The Right Blend” by Mary Rowland in the April 2008 issue of Financial Advisor http://www.fa-mag.com/component/content/article/1-features/1879.html

iv The financial incentives in the life insurance marketplace for misrepresentation are, I contend, greater than they are with any other consumer product. There are few combinations of products that are substitutes where the difference in compensation to the sales person from selling one versus the other are similar to the differences in compensation paid to the life insurance agent selling whole life versus selling term with a side-fund. This point is not to be confused with the price spectrum of many products, such as cars, blouses, cosmetics, etc. which can be wide-ranging. First, all other products have their price prominently displayed; in contrast, recall the difference between a life insurance policy’s price/cost and its premium. Second, the difference in costs between many substitutes, i.e. women’s blouses, can be attributable to significant differences in input materials, i.e., fabrics, design, quality, etc., such that the differences in costs among substitutes are recognized and attributable to factors other than the difference in sales compensation. The difference in price between a $10 shirt and a $100 shirt is not attributable to the difference in compensation that the sales person receives for selling the product. In contrast, the difference in costs between a $500 level term premium and a $5000 whole life premium is directly attributable to the more than $4500 difference in agent compensation these two substitute products provide. For more information on this topic, please see my Table 2 and 3 or my “Policy Disclosure – Press Release” article on my web site, www.BreadwinnersInsurance.com.

Life insurance policy cost disclosure that has always been needed but not yet mandated by regulators will drive the excess sales costs out of cash-value life insurance. While a commission disclosure requirement, as is currently required by ERISA on sales of insurance products purchased by qualified plans, could be useful, everyone knows that the most significant single fact about any item anyone buys is its cost. Whether one’s buying a diamond or a donut, the most essential information, more important than how much the jeweler or retailer makes on a sale, is the cost of the product. Car dealers post costs, grocery stores post costs, even hedge funds post costs. In contrast, life insurers because of its policies’ financial characteristics or construction, and the industry’s historically ineffective regulation, have never clearly posted the costs of all its policies. Markets, though, can’t properly work without such price/cost information.

When disclosure truly comes to the life insurance marketplace, the industry will no doubt try to portray disclosure as an insignificant event, as something unnecessary because it will claim that its sales people have always provided it and/or always done what was in the consumer’s best interest. It will no doubt be seen by some others as inevitable and just another event in society’s natural progression. Such perceptions and opinions will totally misunderstand the decades-long battle to bring good disclosure to the marketplace, and the roles that regulators, the industry, journalists, consumerists and others have played throughout this ridiculously protracted public policy disaster. If such perceptions and opinions are widely believed and accepted as accurate, that would become, sadly, just another instance of the public’s profound misunderstandings regarding the life insurance industry’s age-old problems.

v Myriad misrepresentations are made by life insurance agents. Misrepresentations of the costs of whole life policies play a profound role in the marketplace because of the historic and still current significance of whole life. Several of the oldest, largest, and most successful – as measured solely by annual premiums – life insurers still sell more whole life than any other product. For the record, myriad misrepresentations are also made by proponents of term insurance.

No life insurers are named because the problems of inadequate disclosure and misrepresentations pervade the industry, and the mention of specific insurers would presently be distracting. All of the insurers whose agents were surreptitiously shopped are recognized as industry leaders.

vi Please note that this fourth agent’s insurer has a ‘Code of Conduct’ which the company and its agent tout in their efforts to build consumer trust. The Code’s first two of many rules are: 1) “Representatives must always act in the best interests of the client. Any action taken to further a Representative’s self interest above the client’s best interest is unethical, against Company policy and, in many cases, illegal,” and 2) Any situation with a potential for conflict of interest must be avoided. Examples [include], but are not limited to:…” This mellifluous Code, in addition to being used as a duplicitous marketing tool, also serves as a fortifier of agent conduct and conscience (‘I’ve done it before, the company watches me and said nothing, therefore it must be right and I can do it again’) or an anesthetic simply quelling any agent’s possible uneasiness or discomfort.

This insurer, it should be noted, now requires its agents – or at least some of them, as it now does of one of their few agents I surreptitiously shopped – to obtain the client’s signature on a long form which last paragraph, entirely in bold print, reads:

In other words, this insurer’s Code of Conduct does not apply when its agents sell its products.

vii I have no interest in causing these agents harm. I believe this documentation of their misrepresentations raises serious and involved legal questions, but the ultimate responsibility for the pervasive misrepresentation in the marketplace rests with life insurance executives and regulators. Executives and regulators, in contrast with the vast majority of the industry’s sales force whose actions simply reflect Upton Sinclair’s adage, “It is difficult to get a man to understand something when his job depends on not understanding it,” have had the responsibility to build and to supervise a properly functioning life insurance marketplace with appropriate and effective cost disclosure.

viii One of IMSA’s original auditors of life insurance sales practices was former MA Insurance Commissioner Kay Doughty, who had just been run out of office on ethics violations. No caring person can be opposed to second chances for those who stray, but Doughty ‘ethics’ problems were like Al Capone’s tax evasion. Doughty’s official unpublicized, unconscionable actions in office will live in infamy in insurance regulatory history.

To be clear, it is not just IMSA which is a fraud. As explained in on my web site article, “Life Insurance: An Industry Built on Fraud,” the fraudulent practices in the life insurance marketplace are extensive. Many have said that this web site article helped them begin to understand, what they previously would have never suspected or imagined: the extensiveness of fraud in the life insurance industry and marketplace. http://www.breadwinnersinsurance.com/life-insurance-industry-built-on-fraud/

ix I was equally incredulous, I must add, with Commissioner Cline’s explanation for declining my invitation to join my campaign and provide the good disclosure that consumers have always needed and deserved. She wrote,

Clearly, her reply, I’m sorry to say, is nonsense, pure nonsense; maybe Commissioner Cline was having a bad day when she drafted her reply. I was asking her to act on behalf of consumers, not pick sides between producers and insurers. Her assertion of having “to avoid even the appearance of a preconceived notion about matters that come before me,” could be admirable for its possible candid acknowledgment of incompetence, if her text were not so patently ridiculous, exhibiting a misunderstanding of the differences between “notion” and “bias.” This was unfortunately not the only other time I have received a nonsensical reply from the NAIC.

For instance, years ago, after I had sent an earlier version of my disclosure approach to the NAIC, the then NAIC executive in charge of the NAIC Working Group on Life Insurance Disclosure replied,

To assert, as this NAIC executive did, that there is a meaningful difference between the task of proper disclosure of life insurance illustrations and the question of cost comparison methods is a shocking and profound failure to comprehend: 1) the way sales illustrations are used in the marketplace, and 2) the paramount purpose and importance of disclosure being to facilitate the consumer’s ability to compare products. The two go together like hand and glove.

Let me just add, that I know that there are good and smart people at the NAIC and its state affiliates. In fact, I have been assisted during my campaign by a few who are, and the two whose letters I have criticized might possibly, based on their entire work, be included in such a group. But there is obviously something so terribly sick with the NAIC and its affiliates’ culture which has let regulators acquiesce for decades with their marketplace’s profound, fundamental, and obvious problems that it seems imperative to conduct a review of their operations according to the practices of world renowned quality expert Professor Deming. The NAIC’s unacceptable performance in the life insurance marketplace must be recognized for the national calamity that it is.

x The SEC and FINRA which share regulatory responsibilities regarding variable insurance products have demonstrated no better record than insurance commissioners; in fact, their management of their responsibilities strikingly resembles the Office of Thrift Supervision’s oversight of AIG’s credit default swaps. One clear example of these organizations’ failures is the typical prospectus used for variable insurance products. Aside from the record demonstrating that consumers do not use them, these prospectuses by failing to disclose the policy’s total costs in a simple and straightforward fashion actually facilitate misrepresentations. Variable products have both an account value and a surrender value, the difference between the two being labeled a contingent deferred surrender charge. There is, however, nothing genuinely contingent about such charges; the sales charges that this regulatory construct allows to be classified as contingent are, in fact, inevitable. That these prospectuses do not simply, straightforwardly, and fully disclose the costs one inevitably incurs in purchasing these products is both a testament to the regulators’ problematic acquiesce with insurer’s objectives to obscure sales costs and their lack of understanding of how agents can and do misrepresent something labeled “contingent deferred surrender charges” to circumvent a consumer’s curiosity about such.

xi More than 4 out of 5 recruited to be agents fail from the business within a few years. One life insurer with a sales force of more than 7000 full-time agents, has annually recruited 1500 to 2000 new agents each year for more than 20 years, and yet has had no growth in the number of its agents; as alluded to in my letter to the Society of Actuaries, the recruits are classified as independent contractors, although managed as employees, to avoid their inclusion in the unemployment insurance system. (This is just another way life insurers avoid fully accepting the total social costs of their operations.)

I have seen dozen of good men and woman fail as agents, and not for lack of effort or ability. Such failures are financially costly to these individuals, their families, and their clients– the few clients whom they were able to convince, typically with some misrepresentation, to buy a policy with excessive sales costs. Misrepresentations may well occur in almost all sales situations – that at least was my experience when working in an agency office and thereby regularly hearing and hearing about agents’ sales presentations. As the statistics show, most recruits do not learn how to navigate making sales and fail from the business, having never fully understood – almost to a person – the products or the business. Any I have known who have had an inkling of the industry’s irreconcilable practices have either feared their own liability or felt the system couldn’t be changed because of the industry’s power.

In light of the industry’s turnover among its agents, the conventional advice regarding looking for a good agent is to look for one who has been in the business for many years. Ironically, and unfortunately, as again I believe my surreptitious shopping indicates, those who succeed in this marketplace could well just be those who are most successful in making misrepresentations. Many agents do not recognize their own misrepresentations, and those that have some inkling about the matter typically have their own justifications. Clearly, successful agents have rejected Sophocles dictum: “Better to fail with honor than to succeed by fraud.”

Indeed one successful agent I surreptitiously shopped actually stated, “What I’d like to start with is a little basic life insurance theory, if you will. This is just a very simple graphic way to explain how life insurance works. Cause it is kind of confusing, and I think to some extent life insurance companies want to keep it that way cause it keeps me in business.” This agent is in fact correct, at least to an extent. The confusion in the life insurance marketplace is instrumental to the extraction or appropriate of excessive costs from uninformed consumers. Along such lines, Belth has stated that he has been gold by life insurance executives that the industry could not survive good disclosure. Of course, such hyperbole and implicit warning/threat of catastrophe ought to be simultaneously recognized both as proof of my argument and yet as an unpersuasive attempt to defend the broken status quo.

Another telltale sign of the problems in the current marketing of life insurance is that the typical life insurance agent does not sell one life insurance policy a week. Admittedly, agents also sell annuities, long-term care insurance policies, and in recent years some other financial products such as mutual funds, but for many agents and insurers, life insurance is still their primary business. The above-mentioned life insurer with 7000 agents typically only annually sells a total of approximately 300,000 policies – and that’s counting all life, disability and long-term care policies; its core businesses. Per agent, that’s less than 44 policies sold per year, and yet this insurer is regarded as having a highly productive sales force.

No one should conclude from this industry’s sales forces’ abysmal productivity, that such high compensation per sales is justified and necessary because of the difficulty of its work. Lots of jobs are difficult. It is not the ease or difficulty of a job that determines the compensation. If the life insurance industry believed that its agents’ compensation on the sale of a whole life policy could be justified, it would have never had any problem disclosing such. After all, that which can be justified can be sustained. But the industry has – at least at some level or in some way always really known – despite the difficulties selling – that its sales compensation could never be justified because no informed individual would accept them. This is just merely another way of looking at the source of this dysfunctional industry’s age-old problem. It is truly an incredibly simple problem, when it is clearly seen. Somehow, though, it has been allowed to continue for generations.

These facts all show that the distribution model built on inadequate disclosure has been broken for decades. In addition to the regulators’ failure to have mandated appropriate policy disclosure, it must be briefly noted that many other life insurance industry regulations are problematic and significant factors that contribute to the industry’s dysfunction. Everyone ought to recognize the need to evaluate the constitutionality of such paternalistic prohibitions as those against discounting/rebating commissions when enforcement of manufacturers’ suggested retail price practices have been repeatedly struck down. Similarly problematic is the prohibition on agents charging fees in lieu of, or separate from commissions, or seeking a retainer for services to be rendered. These anachronistic regulations stymie the functioning of a competitive market. Consumers must be able to seek discounts, to obtain competitive value, and sellers must also be able to protect their resources, namely their time, from being abused. Doctors, lawyers, accountants, auto mechanics, etc. can all charge and seek payments from patients/ clients/customers, life insurance agents cannot; and the facts do not warrant or justify such inconsistent rules. This particular problem may not seem worthy of consideration to those who have never been an agent, but any such prohibition that creates such a significant and unnecessary problem in the allocation of resources ought to be worthy of review. These various other matters, which obviously warrant and require much further discussion, have only been mentioned to indicate the much broader insurance industry problems of misguided, paternalistic regulations that are separate from that of its inadequate disclosure regulations.

Finally, I must explicitly state here, what I have stated elsewhere, but which prove the life insurance industry’s dysfunction. I can both empirically and logically prove that the costs that consumers pay in purchasing whole life and other similar cash-value policies with excessive sales load are unjustified, that is, they cannot be sustained to an informed consumer. Empirical proofs could be simply conducted with consumers or researched by speaking with fee-only advisers about their work, which largely consists of refuting agents’ misrepresentation and failures to inform consumers about better value policies. In essence, doing what the actuary cited in my letter to the Society of Actuaries admitted that his insurer was unwilling to do. The logical proof is equally compelling. There is nothing about cash-value life insurance that justifies the sales loads that are extracted from consumers. The fundamental advantages of cash-value policies arise from their tax privileges, but tax privileges are a free non-proprietary input. In a competitive marketplace one cannot extract value from a consumer for a free, non-proprietary input. That the life insurance industry has done so for decades is a function merely of historic practices built and sustained with misinformation. These facts spotlight the unenviable position of modern life insurance agents functioning in a marketplace where consumer distrust is justifiably high and objective information virtually nonexistent. And yet, while spotlighting such, these facts do not excuse the market’s dysfunctional history or endorse continuation of its dysfunctional operation.

xii Defending White Collar Crime: A Portrait of Attorneys at Work, Yale University Press, Kenneth Mann, 1985, p. 234.

There are, in fact, concrete examples of government attorneys not recognizing and/or not understanding the problematic practices in the life insurance marketplace. Fee-only life insurance adviser Glenn Daily, quoted in the Financial Advisor article above that “he can’t believe there haven’t been lawsuits about this” reports that the CT Attorney General’s office took no action regarding his referral of a defrauded client. Similarly, fee-only life insurance advisor David Barkhausen has had a client who has received no help from either Oregon insurance regulators or FINRA regarding a problematic sale. I have seen other instances myself.

Some might try to claim that such inaction on the part of legal authorities supports the position that life insurers and their agents have committed no wrongs. There are, however, much more compelling alternative explanations regarding legal authorities’ inaction. Recall the SEC’s inaction on the Madoff matter, the dot.com pump and dump bubble, and numerous other enforcement actions taken only after the financial crimes had imploded. It is unfair to challenge critics of lax enforcement to prove that those who enforce financial regulations are unqualified or incompetent; no one can prove a negative. On the other hand it is fair and reasonable to expect those charged with enforcement of financial regulations to prove that they understand and can identify financial crimes, and yet regulators have never required such examinations or proof. There is abundant proof that many financial crimes have persisted for years in plain sight without being detected by regulatory legal authorities. And knowing such, especially my knowledge of the life insurance marketplace, I condemn life insurance regulatory enforcement.

Given that President Roosevelt is rumored to have said regarding his nomination of Joseph Kennedy to be the first chairman of the SEC, “It takes a thief to catch a thief,” it should not surprise anyone that in this era of sophisticated financial crimes only individuals with sophisticated financial knowledge and experience are able to understand and prosecute sophisticated financial crimes. And, as the regulators’ inaction on the Prudential nationwide advertisement mentioned below documents, there is little reason to currently think that any of the insurance regulatory legal authorities have the genuine knowledge of insurance products to understand many of even the most blatant misrepresentations. Given the pervasiveness and harmfulness of financial crimes and frauds in our modern economy, it is practically comatose behavior of financial regulators to have NOT developed rigorous certification standards and testing methods for those charged with financial regulatory enforcement. A society with a multi-trillion dollar economy that spends more on enforcement of parking laws on motorists than it spends on financial regulatory enforcement is incredibly misguided.

xiii Insight into the misleading aspects of the NAIC’s original Life Insurance Buyer’s Guide’s statement that there are two types of life insurance, term and whole life, begins when one recalls or learns that whole life is called whole life because it was originally called “level payment term for your whole life.” And so the NAIC’s Buyer’s Guide rather than facilitating consumer comprehension of the differences between these products, the fundamental differences arising from cash-value policies tax privileges, relies instead upon the pervasive societal misconceptions that these products are fundamental different in how they operate. No one committed to disclosure would have ever published a Buyer’s Guide asserting that there are two types of life insurance: term and level payment term. When informing or educating others about two things it is absolutely critical to identify their similarities and their differences. With disclosure, one readily understands that whole life is merely term insurance with large/unsustainably large sales loads and tax-advantages. More on this subject is explained in my 2002 Journal of Insurance Regulation article, available in my web site’s Archives. The section, “Marketplace Implications” beginning on page 18 could be very useful supplemental reading. The Archives also contains some of my preliminary thoughts on a new and genuinely useful Life Insurance Buyer’s Guide.

The extent of the misunderstanding among the highest level of government officials regarding cash-value life insurance is the Congress’ frequent reconsideration of the tax privileges of cash-value policies. In the last 30 years, Congress has extended many new tax privileges to promote individuals taking responsibility for their own and their family’s financial security (IRAs, 401ks, Roth IRAs Section 529 Plans, Pre-tax Health Insurance Spending Accounts, the deductibility of LTCI premiums, etc.) The proposals to eliminate the tax privileged inside build-up of cash-value policies seem not to recognize that this “aspect,” and virtually this “aspect” alone, is the factor responsible for these policies’ genuine advantage. It is not that whole life eliminates, avoids the increasing costs of coverage as one ages, or has some other ineffable magical advantage. Whole life, in essence, was the original tax-advantaged spending account, but because of its historic roots, apparently, its fundamental structure has not been analyzed alongside all the tax-advantaged products created in recent decades. Eliminating whole life and other cash-value policies’ tax privileges would be to destroy the policies’ fundamental advantage. The fact that discussion of the elimination of such privileges can so regularly and so seriously occur apparently without a simultaneous realization of the extraordinary and drastic impact such would have on the industry is, I believe, nothing but a testament to the pervasiveness of misunderstandings regarding cash-value life insurance at the highest levels of government. Such Congressional proposals only appear threatening until one realizes that those who propose such apparently don’t really understand the product nor do they recall the extraordinarily strong, and I contend, entirely justified and defensible social arguments for life insurance’s tax privileges. An individual’s policy helps take care of his loved ones, i.e., a surviving spouse and children, or his own financial debts or final or end-of-life expenses; all of which, even among those typically opposed to tax privileges, are held worthy of governmental encouragement. (Second-to-die policies’ privileges are very different matters and ones worthy of public discussion).

xiv The National Underwriter article containing the misrepresentation is located at http://www.lifeandhealthinsurancenews.com/Issues/2010/December-6-2010/Pages/Whole-Life-Insurance-Turns-2000.aspx My own web site contains my blog about this, my email to the insurer’s general counsel regarding the company’s employee’s misrepresentation, and the insurer’s reply.

Perhaps, one of the all-time most shocking printed misrepresentations is Prudential’s nationwide advertisement in The New York Times, December 7, 1997 Sunday Business section, just months after it settled for $2 billion a multi-state regulatory investigation. Prudential declared, “In most situations, the life insurance that you already own is your best buy.” This statement is absolutely untenable, on both logical and empirical grounds. Prudential’s Chief Actuary declined my invitation to defend his company’s hogwash. That no regulator took adverse action against Prudential for this blatant misrepresentation is just further proof not only of the pervasive misrepresentations but also of the astonishing – to speak euphemistically – lack of quality in regulatory enforcement of insurance laws. Anyone who cannot write a 500 word essay expounding upon all the errors in Prudential’s ad is absolutely unqualified to participate in life insurance regulatory enforcement. While no human or human institution is infallible, regulators charged with enforcing insurance laws who demonstrate this truth daily should be replaced; American consumers deserve effective enforcement.

xv One large consumer organization relies upon a former actuary and insurance commissioner as its consumer advocate. This actuary/consumer advocate has actually recommended greater compensation for agents selling cash-values policies, and that consumers be advised of the cost of terminating a policy. Given that consumers do not knowing accept the current compensation levels, greater agent compensation for selling cash-value policies is not the solution to the industry’s disclosure and problematic sales practices. Furthermore, the recommendation that consumers be advised of the cost of terminating a policy is incredibly invalid, virtually fatuous, economic analysis. A forthcoming Breadwinners’ Insurance article will expand upon these points.

It should also be noted that this actuary worked for many years as Chief Actuary for a life insurer that conducted a patently unfair demutualization that actually deprived policyholders of their exclusive interest in the insurer’s $100 million surplus and future profits. This looting has remained one of the biggest unreported financial crimes in America. If such managerial experience does not disqualify one, or at least curtail a consumer organization’s reliance upon such an individual as a consumer advocate, then Jeff Skilling and Bernie Ebbers may have future leadership roles for investor protection groups!

This actuary/consumer adviser also currently charges consumers $80 to perform an analysis of a life insurance policy’s sales illustration. Please recall first, that sales illustrations, according to no less of an authority than the Society of Actuaries, are not to be used for “comparing the relative cost or performance of life insurance products.” So, any analysis – especially one comprised of extensive mathematical analysis of twenty years of illustrated values – is inherently problematic, especially when used, as this advocate does, to calculate a score of measures on which he bases his recommendations regarding the policy’s merit. My web site article, “What Breadwinners’ Thinks of Others’ Approaches,” further describes this actuary’s/consumer adviser’s flawed practice. His analytical approach, the Linton Yield method, is not entirely worthless, but it is an analysis which the NAIC has rejected on multiple occasions as an inadequate disclosure approach. It is also inconsistent with Professor Belth’s call for disclosure of information about a policy’s annual costs and rate or return, and with Professor Ralph Winter’s analysis/proof that a single metric cannot be used to describe a cash-value life insurance policy.

Finally, this consumer advocate, although well-intentioned, does not believe that the life insurance industry can ever be changed and has refrained from challenging IMSA’s fraudulent practices because IMSA’s President is his friend. Although eligible to be a funded consumer representative at NAIC meetings, he stopped attending approximately 10 years ago because, as he has said and written, “They never listened to anything I said.” That life insurance consumers have been served for decades by such an individual who cannot conceive of their mission ever being successful and whose actions have been so problematic and ineffective is most unfortunate. When President Lincoln realized that the Union’s Commanding Generals were not winning the war, he replaced them. Why this consumer organization has never considered this actuary in its nearly 30 year affiliation with him is not a question I can answer. It is difficult to imagine, I am sad to have to state, a less effective representative for America’s life insurance consumers unless the industry had chosen the representative itself.

Let me note that I have recently been informed that the American Council on Consumer Interests – a different organization from the one which has relied upon the above mentioned actuary – has accepted for its 2011 journal and conference my article, “The Disclosure Solution to the Problems Consumers Face in the Life Insurance Marketplace.” I am committed to seeing that the American life insurance marketplace be fixed, if not as a direct result of my campaign before my self-imposed prior deadline of year-end 2010, then during 2011. Something so fixable, yet which so many have allowed for so long to harm so many millions, must be fixed now.

xvi Consumers Union (publisher of Consumer Reports) and one of its writers produced an article and then a book in the 1980s where it compared and evaluated policies based on insurer’s sales illustrations. Such comparisons are akin to admitting students into college based on transcripts they themselves printed. On the basis of this “analysis,” this most inherently defective “analysis”, Consumers Union listed an Executive Life policy as best. For those unfamiliar with Executive Life, it was a large insurer and leading investor in what where then called junk bonds before it became insolvent in less than five years from Consumer Union’s specious ranking.

xvii One professor, in fact, has served on IMSA’s board, others have published articles that are patently flawed and nothing but the work of a hired gun. For instance, in the early 1980s following the introduction of universal life, another professor in a Journal of Risk and Insurance article (December, 1982) asked, “Why does whole life insurance continue to exist?” He answered that it must be because whole life provides a valuable “package of options that is not precisely duplicated by any other combination of commonly available financial contracts.” This ivory tower hypothesis is unfortunately devoid of any real world common sense and any genuine life insurance marketplace knowledge. Almost every product can be considered a “package of options.” Cuffs can be added to these pants, but not those; some cars come with space for 7 passengers or engines strong enough to tow a trailer, some others don’t have such capacities. Asserting that a product is a package of options is hardly a scholarly insight. Moreover, this professor overlooked: 1) the absence of appropriate disclosure of the cost or price of the whole life package (which every other product provides in a straightforward and in a usable form to consumers) and 2) the pervasive misrepresentations that life insurers and agents used and still use to battle universal life.

Universal life is widely considered the creation of James C. H. Anderson, the legendary former Tillinghast actuary who is now in the Insurance Hall of Fall. He had intended for universal life to transform the life insurance marketplace because of its separation of whole life into its term and savings components. Year ago, I sent him a copy of my disclosure approach and an early published article. Although he had retired, he replied with a letter. Subsequently, we had a good discussion on the phone about how the life insurance marketplace needed not just good products but also good disclosure about products, and had scheduled another conversation about an additional second paper of mine he had just received. The next week, on the morning we had agreed, I called to follow-up. His son answered the phone and explained that his father, just a day or two earlier, had suddenly, unexpectedly suffered a fatal heart attack. Naturally, I just expressed my sadness, extended good wishes, and said good buy. Subsequently, though, I have more than once wondered how we might have been able to work together to achieve our shared goal.

xviii “A Very Popular Annuity Sales Presentation: What do you think of it?” is, according to several of my blog readers, a highly-readable article that presents a straightforward and alarming analysis of a widespread misrepresentation by annuity salespeople. See http://www.breadwinnersinsurance.com/annuity/

“Long-Term Care Insurance: The Blackest Box” is a forthcoming BreadwinnersInsurance.com article that highlights some fundamental problems with long-term care insurance policies as they are presented marketed. LTCI is essentially a deferred contingent annuity in which the consumer has essentially no real ability to move her/his business elsewhere and yet the insurer possesses/retains the option to increase premiums on previously issued policies without having ever provided the consumer with adequate information. Talk about shooting fish in a barrel. Consequently, there perhaps should have been no surprise with LTCI insurers’ premium increases of 20, 30, and 40%, but there has been extraordinary consumer outrage – what would seem to be yet another telltale sign of this marketplace’s inadequate disclosures and, at best, miscommunications. As my forthcoming article will show, it is virtually impossible to conduct a due diligence review of long term care insurance policies. Buyer beware, buyer be very aware, is alive and well in the 21st century in America’s life insurance marketplace.

xix Sternberg full response to the Best’s Review interviewer is, “The life sale is a very difficult sale. People have to talk about their mortality, about how much money they really need. It’s very complicated. If right in the middle of this discussion, you throw in ’And by the way, there’s a 55% commission [not counting bonuses, expense allowances, and compensation for other field management and renewals]‘ You won’t get the sale…..” It is truly rare to get such a candid admission from a life insurance executive of his belief in the necessity for misrepresentation. The necessity to misrepresent arises in sales situation whenever a consumer asks either directly or indirectly about cash-value policies’ low early years cash-values. Agents, as are shown in the quotes from my surreptitious shopping experiences, use a variety of techniques to confront this issue that the industry, but they all fundamentally rely upon misrepresentations or material omissions.

There is profound irony in the industry’s conduct. The life insurance industry touts to its consumers, and its sales agents, that its relationships with its “clients” are built and based on trust. And yet the foundation on which it operates is poured with – comprised of – misrepresentations and inadequate information. It really is quite a marketplace. And, yet, virtually no one who has not been actively involved in it can fully conceive the enormity of its problems.

xx If for any reason you are inclined to defend the NAIC’s regulatory history, rather than expeditiously engage in solving these problems, please arrange with news organizations for a forum where we may both thoroughly present facts so the public can evaluate our positions.

xxi Life insurance is an insurance product with virtually no claims disputes. To be sure, there are a few, but most of which involve insurers defending against consumer fraud and/or agent complicity. Life insurance can provide extraordinary value and financial protection, that is, provided that it no longer is allowed to remain riddled with all the problems that arise from inadequate disclosure. I trust and hope that you now agree; and that you will now use your power to fix the life insurance industry’s age-old and terribly costly problems. Thank you for your time and consideration; I look forward to your thoughts.