Life Insurers' Program Seeks to Repair Damaged Image


Sales abuses, fraud investigations and massive lawsuits have soured consumers' view of life insurers over the last five years. And the industry knows it needs to repair the damage.

One tool for doing that will be introduced by dozens of companies Wednesday, when they can start advertising the industry's own version of the Good Housekeeping seal of approval.

Life insurers, hoping to clean up their act and boost public confidence as well as sales, created the Insurance Marketplace Standards Assn. to bestow the certification.

But how much credence should consumers give it?

Consumer advocates, whose initial reactions range from lukewarm to wary, suggest that insurance buyers consider the IMSA designation but not let it lull them into a false sense of security.

Industry officials agree that the program is no cure-all. However, they say it increases the chances that companies will sell life insurance or annuities that are appropriate to each customer and will explain products fairly and clearly without misleading clients.

"It's most likely going to be cosmetic and not meaningful, unless there is some teeth in what happens and how these things are monitored," said J. Robert Hunter, director of insurance for the Consumer Federation of America. "It's still caveat emptor."

James H. Hunt, a life insurance actuary also affiliated with the federation, is a bit more charitable. If someone is deciding between two companies' cash-value policies and other things are equal, "choose the one with the seal," he said.

As of last week, 76 companies had been certified, and the total is expected to top 100 soon.

The program comes after nearly every major life insurer has been sued by policyholders alleging that they were misled into buying or replacing policies, which was not in their best interests. In some cases, agents who were eager for commissions promised that premiums would be paid up within a certain number of years, but customers had to continue paying or let policies lapse.

Getting certified does not mean a company or its agents will never misbehave, but "there are not going to be systemic things that go unchecked and undiscovered," said Robert R. Googins, the IMSA's executive director.

To get certification, a company voluntarily adopts the IMSA principles and code of ethics and goes through a long and arduous process to gauge how well it can comply, industry officials say.

Armed with a 191-page handbook, a company makes a self-assessment, then hires a professional from an IMSA-approved list of people in accounting, legal, actuarial and management consulting fields to do an independent assessment.

Companies are warned against getting people to replace their existing insurance policies if that is not appropriate, and "competitor bashing" is discouraged. Companies are also supposed to make "good-faith efforts" to resolve customer complaints without resorting to lawsuits.

The IMSA maintains a list of approved reviewers because it would be irresponsible to let firms pick anyone they choose, Googins said.

Companies pay for the reviewers--a cost that has ranged from about $10,000 to $250,000, depending on the size of the company and the complexity of its product line and sales system. Googins said companies pick and pay for their own outside auditors, and the public relies on the auditors' opinions.

The IMSA itself is being funded for three years by the American Council of Life Insurance, a major trade group. After that it will be funded by member fees.

The IMSA holds companies to higher standards than laws require, said Googins, who will end his two-year stint at the organization Oct. 1.

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