U.S. might look abroad for ways to improve life insurance industry

Staying Ahead

June 24, 1996|By Jane Bryant Quinn

NEW YORK -- AMERICA isn't the only country to be rocked by dishonorable life insurance practices. In the early 1990s, the industry also collected some nasty headlines abroad.

Salespeople in the United Kingdom and Australia were caught rooking customers wholesale, using the same kinds of tactics that -- in those years -- were also tarring the reputations of Prudential, John Hancock, New York Life, the Equitable and Metropolitan Life, among others. In the 1980s, similar smells wafted over Norway and France.

"Insurance agents had a bad image," says Jean-Pierre Daniel, director of CAPA, a Paris-based industry trade association.

Public outcry caused the life-insurance business to be changed for the better in those countries. New and lower-cost competitors entered the field. Better consumer protections were written into law.

Here, however, it's pretty much business as usual. The states, not the federal government, regulate insurance companies, and they've shown no collective interest in reform. They've fined some high-profile malefactors. Then they've yawned and walked away.

Life insurers are quick to say that they've learned how to police themselves. Many have revamped agent training and beefed up internal controls. Still, a vision of foxes and chicken coops swirls in my head.

"We can see lots of problems in the U.S.A.," says Frank McGhee, an executive of the Australian Mutual Provident Society. "But we don't get a feeling of, hey, we got to get in and fix this."

The one "reform" that U.S. companies talk about is cutting the big upfront sales commissions they pay to agents. Supposedly, that would dampen an agent's incentive to sell to anything that moves. Under such a system, however, sales commissions rise in later years. That should encourage better customer service but may also increase the total amount that clients pay.

In the United Kingdom, Norway and Australia, insurers can charge any fees and pay any sales commission they want, but the fees and commissions must be disclosed, along with the investment yield that the policy pays. Competition, not law, has also forced price disclosure in France.

And, telling customers what they're actually paying pushes down fees and commissions. Australia's first-year commissions used to run about 80 percent of the policy's premium cost. Now, many firms are offering 45 percent. (In the United States, they can run more than 100 percent.)

In the United Kingdom, an industry regulatory group publishes a list of the companies' costs, so consumers can compare. Lower fees and commissions create more value for customers.

In France, price disclosure was spearheaded by banks, which hired salaried staffers to sell low-cost products over the counter. Banks now dominate the business there, but their presence has aided life insurers, too, Daniel says. Widespread public acceptance of bank insurance enlarged the total market and gave insurance a better name.

Price disclosure, along with those lovely cuts in cost, isn't going to happen here. The states won't require it; the industry won't volunteer it; banks can't force it by introducing cheaper products. Federal law and regulation prevent the banks from competing with insurers head to head -- and the insurers lobby to keep it that way.

With term insurance, the price is the premium you pay. But cash-value policies combine life insurance with an investment, and there's no way to know what you've paid for each. An agent could sell you an especially high-priced product and you wouldn't have a clue.

A handful of "low-load" firms sell policies at a fraction of the price charged by the mainstream firms. Call Ameritas Life at 800-552-3553, USAA Life at 800-531-8000 or the Wholesale Insurance Network, 800-808-5810.

Pub Date: 6/24/96

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