Why Can’t We Be A Self-Policing Industry?
April 19, 2010 by Sheryl J. Moore
When I started speaking to large groups about five years ago, I would usually include slides in my presentations that talked about the top-selling products, regulatory trends, and upcoming changes to product designs. Now keep in mind, the market environment was much different then. It seemed like every other company was being sued in a class action suit (no, lawyers never get tired of money) and negative media was DEFINITELY in the headlines (senior suitability, anyone?). At that time, many of the product designs in the fixed and indexed annuity markets contributed to bad agent behavior. There were alot of products with big bonuses, big commissions, and big surrender charges (relative to today). The products were not necessarily bad in and of themselves. It is just that they were easily manipulated to suit the needs of the ill-informed or ill-intentioned. (And by the way, I own one of those big surrender charge/big bonus products, which just goes to show that they are definitely suitable for some people!)
Ultimately, the agents in these seminars would ask always ask, “Why does the insurance commissioner approve these products if they cause so many problems?”
My response, “Because every product is suitable for SOMEONE. It is not up to the commissioner to determine suitability; it is your responsibility to determine suitability.”
They would then follow-up, perplexed with, “Then why do insurance companies develop and file such products with the insurance commissioner?”
Sadly, I would have to respond with, “Well- quite frankly, they do it because you will sell it.”
Isn’t that a shame? At times, profitability and sales have taken precedence over the client and even the agent. I will give you that things are alot different today. I may not like the 10/10 rule, or how it limits consumer’s choices. However, I do have to admit that alot of the suitability issues with annuities have disappeared down the drain along with extended surrender charge products. Further regulatory action has helped, and so has increased disclosure. But should we really be forced into compliance?
The truth is finally spreading about indexed annuities: negative media is not nearly as prevalent. Complaints on the products have never been lower, and product designs are simple and consumer-friendly as a whole today.
But there are still a couple of products out there that are disappointing. Agents may have trouble understanding the products which can lead to miscommunication to the client. Who ends up being “on the hook” in the end when the lawyers come calling? The agent. Of course the insurance company has done a fine job exponging themselves of any responsibility (their forms and disclosures clearly explained how that product functioned!) in nearly all cases. In the end, however, products like this hurt us all.
After all of the hard work I have done over the past five years, ensuring that the reputation of indexed annuities is based on accurate information, it scares me to think that a couple of products (that coincidentally do not sell so well) could put us in a position to take a step back in terms of this reputation.
If you are a company looking to develop such a product, you can count on two things:
1. I will not work with you in your product development endeavors, and
2. What comes around goes around
Ultimately, everyone pays a price for shady business practices. When you consciously make a decision to market a questionable product, you are no better than a sneaky snake oil salesman. Such practices nearly always seem to come full circle whether it be through fines, lawsuits, or merely targeted negative media. I will not contribute to it, but I will not endorse it either.
It is just unfortunate that all of us tend to bear the ‘scarlet letter’ label when you forge ahead with such designs.
THINK ABOUT IT. sjm