Earlier this year there was an article in LifeHealthPro about a lawsuit filed by a couple in California regarding their life insurance policy. Evidently they could not afford the premiums on their large life insurance policy and they ended up having to reduce the face amount considerably. The lawsuit against the carrier is due to the fact that the carrier did not inform them of the option of a life settlement.
I also read an article written by Robin Weinberger and Peter Katz for Life Insurance Settlements, Inc. in response to this lawsuit which discussed broader issues and implications and this is what I want to comment on.
The piece begins with “Sadly, California has not enacted the NCOIL Model Disclosure Act that requires insurers to inform senior clients, that are about to surrender a policy, that the option of a life settlement exists.” I will take issue with this. While I am sure there are examples of such in the market, I cannot side with a mandate which requires a private company to provide information which is financially detrimental to itself with an exception for safety issues. Sure, GM must disclose safety issues which result in expensive recalls but they certainly aren’t mandated to inform a potential buyer that a F150 is on sale for less money down the street or that Dodge offers better financing or that the independent transmission shop a block over can put in a rebuilt transmission for half the cost of a new one in the dealership shop. I cannot understand why a company must educate a consumer on all market options. Off the top of my head I can’t think of any industry which requires such. What is to keep a client from suing an insurance company for selling a twenty year term policy when they didn’t tell the consumer another similarly rated carrier had the identical product, for all intents and purposes, for a meaningfully lower premium or even a minimal difference.
Beyond that, I will agree with the balance of the piece. “However, carriers that forbid their producers from participating in life settlement transactions for their clients are taking the problems a step further. They are engaging in conduct that goes beyond merely failing to inform. That is, they are actively preventing consumers from getting the information and counsel they need… When producers are gagged by their companies from discussing life settlements with their clients, they are being placed in a perilous position of having to choose between following their company’s rules and giving proper advice.” This is the root of the issue.
I work with many agents who sincerely want to do the best for their clients who are strictly prohibited from doing so per the contract with their insurance carrier. What would the consuming public think of this if they really knew? Imagine working with the many other professionals or providers one does on a regular basis knowing they may be prohibited by contract from bringing to your attention a valid and legal opportunity which was clearly in your best interest.
I have agents who will only talk to me on their cell phones, who will only meet with me in out of the way restaurants or in the far corner of a parking lot (seriously). They even pass me files under the table. These are producers who desperately want to do the right thing but are scared to death of being fired by their carrier if found out. I realize and understand the shenanigans in the life settlement market over the years and standards, rules and regulation are important. But that is not why the insurance companies hate life settlements. They hate life settlements because settlements cost them money. They hate settlements because they fear legislative changes which will affect their core business (which will cost them money). Only the most disingenuous of carrier advocates would argue the carriers are doing this for the benefit of their clients. And only the most gullible of agents and advisors would believe this to be the case.
I’ll again state for the record that I believe life settlements, when utilized and transacted appropriately, can be one of the most powerful, consumer beneficial opportunities available. Daring to have such an attitude has caused me to be railed against by those subject to the institutional indoctrination of their home offices but the bottom line is that it is categorically indefensible to argue that the strategy shouldn’t be on the table for consideration when appropriate. I find it comical to experience the juxtaposition of the flowery rhetoric showered on the consuming public through various advertising media versus how I know they operate in secrecy behind the scenes. The hypocrisy is appalling.
“While the insurance industry has successfully, thus far, avoided a fiduciary standard for producers, it appears to be time that the actual nature of the relationship of producers to their clients is clearly disclosed. It is surely possible to have an agent-company relationship that is not harmful to the client, but when the insurers insert themselves into the producer-client relationship, to the possible detriment of the client, the client has a right to know… The California litigation… sheds light on a serious industry problem… Unbeknownst to the client, insurance company dictates can turn well-meaning producers into mere product pushers rather than valued advisors. This is unfair to both producers, who want to do the right thing for their clients, and consumers, who may be deprived of an opportunity to maximize the value of a life insurance policy that they are about to lapse or surrender.”
In light of the focus on consumer protectionism which results in ridiculous amounts of sometimes ineffective regulation, how can the value of such a simple concept be difficult to understand and implement?