Buyers Need More Help, Insurance Regulators Told

State insurance regulators meeting in Reno this week were urged to take stronger action immediately to protect consumers against misrepresentation by life insurance sales agents.

According to insurance consultant Joe Mintz, who publishes the Dallas-based NROCA investment newsletter: “Millions of Americans are daily being duped by the life insurance industry, losing hundreds of millions of dollars which could otherwise go toward goods and services . . . and all of this is under the watchful eyes of the state regulators at this convention.”

Mintz was invited to speak Monday to a task force of the National Assn. of Insurance Commissioners that has been studying the disclosure issue since 1980. Mintz recalled that he first raised the issue of fuller disclosure of life insurance costs before the association 18 years ago.

“Even the most sophisticated buyer, well trained in mathematics, fails to catch the trickery of numbers,” Mintz claimed. A lack of understandable information about the relative costs of different policies thwarts consumers seeking to purchase the most cost-effective policies, he said.

Mintz urged regulators to use their existing state authority to fine insurers who misrepresent policy costs and investment values.

Because formulas used by 36 states to make cost comparisons are defective--as the commissioners themselves concluded five years ago--the threat of fines would force insurers to devise more accurate methods to enable consumers to make cost comparisons, Mintz said.

However, Walt Miller of New York Life Insurance said there are no easy solutions to the disclosure problem. Miller, chairman of a study committee appointed by the regulators, said providing detailed cost information may “foster the impression that life insurance is an investment” rather than a means of providing family protection.

Mintz, in an interview, said the insurance industry itself is promoting so-called universal and variable life insurance policies as investments.

These kinds of policies generally separate premium payments into two funds--one that purchases insurance and another that earns a cash value that the policyholder can borrow from or obtain by cashing in the policy. Traditional “whole life” policies, which merge insurance and investment funds and generally earn low rates of interest, fell out of favor in the 1970s as consumers took advantage of new investment opportunities at far higher rates of interest in money markets and increasingly purchased term--or pure insurance, presumably handling their investments separately.

The industry in the 1980s successfully wooed back many consumers by offering more flexible, investment-oriented insurance products. These, Mintz said, have greatly complicated the task of consumers shopping for cost-effective policies.

Miller recommended that regulators adopt a “yield index,” based on a complex formula, to grade similar kinds of policies. Such an index, he claimed, would help regulators detect price manipulation, give consumers an estimate of annual rates of return that they can expect from their cash-value policies and give owners of current policies an idea of their value.