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Life insurance industry tackles ethical questions


NEW YORK -- The life insurance industry takes a lot of hits for tolerating deceptive sales. Not the least of those hits have come from me.

So I'm happy to report that the Life Underwriter Training Council (LUTC) in Bethesda, Md., has put together a training text for insurance agents that directly confronts the self-deceptions that underlie dishonest sales. The book, "Piecing Together the Ethical Puzzle," has been used to train some 55,000 agents so far, says its editor, Gregory Dean.

Until recently, the industry chose to ignore this issue. In deep denial, insurance executives shrugged off all the cheating as just a flea bite. "A few bad apples" was what they said. Then the big public scandals hit: the lies told about policies, rape of customers' cash values, the disregard of people's trust. And involving big names: Metropolitan Life, John Hancock, Prudential, New York Life. "The industry was dumbfounded," Dean says.

So they pulled their heads out of the sand and agreed to a more honest discussion of the problems. The LUTC took the ball and ran with it. Here are the major ethical issues as the LUTC sees them:

* Agents aren't identifying their customers' real needs.

As a result, they sell unsuitable policies that don't provide the security you seek. The LUTC sees three reasons for unsuitable sales: (1) The agent doesn't know enough. "Some of us are reluctant to admit that we are not experts in all insurance fields," the LUTC concludes. (2) The agent has a policy with attractive features and knows it can be an easy sale. So he sells it, suitable or not. (3) The agent goes for the policy that will pay him or her the highest commission.

* Agents are not properly identifying themselves or their products. They hide behind other titles, such as "financial planner" or "special retirement representative." They duck the word "insurance," and may misrepresent their policies as a college- or retirement-savings plan. They do it for fear of not getting the client interview or making the sale, the LUTC says, "but are we ashamed of the products we represent?" Life insurance has a positive place in people's financial planning and should be sold that way.

* Agents fail to deal objectively with clients. In the worst cases, involving fraud, they put personal gain above a client's interests, the LUTC says. In a careless or hard-driving sales office, the atmosphere can quickly shade from gray to black. One agent might sign a client's name to a document in order to expedite a sale. But if that's OK, another agent may sign a client's name without his permission, and strip money out of an older, paid-up policy.

One contentious and unresolved question among agents is whether to replace older cash-value insurance policies with new cash-value or term insurance. Some say "no problem" as long as the new coverage does something better for the client. Others say that replacements are almost always wrong because they cost the customer an unnecessary sales charge. If more coverage is needed, this camp thinks, the agent should sell a supplementary policy and leave the first one alone.

The LUTC hasn't settled this fight. But it agrees that this area is rife with abuse. Replacement is wrong when agents trash old policies just to win new business and commissions. Too many agents, however, may convince themselves that you need the new policy, even if you don't.

Here's what you should expect when an insurance agent calls, the LUTC says: An upfront disclosure that the agent sells life insurance. A thoughtful discussion of your financial needs. A copy of the "Insurance Buyers Guide," developed by the American Council of Life Insurance and the National Association of Insurance Commissioners. A full explanation of the proposed policy and why it will achieve your goals. All recommendations in writing. Illustrations of the proposed policies, along with a written explanation of each. If possible, at least three safety-and-soundness ratings for the insurance company that will write the policy. A comparison of your old policy and your new one, if an old one is being replaced.

The only weakness in the industry's rediscovery of ethics is the narrowness of its focus. Everyone talks about the misdeeds of the agents who tell you fibs while sitting in your living room. But the executives of the insurance companies are equally responsible for allowing, even encouraging, deceptive sales. The LUTC's next book should be an ethics course for executives and their actuaries, too.

You can write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.

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