A National Association of Insurance Commissioners working group is proposing that states protect purchasers of small life insurance policies by beefing up disclosure requirements.
Members of the NAICs small face amount policy working group presented the proposal here at the Kansas City, Mo.-based associations summer meeting.
If the NAIC approves the proposal as is, life insurers would have to give purchasers of small policies a one-page document stating, in simple language, that the total premiums paid over the lifetime of the policy might be greater than the initial amount of coverage purchased.
An insurer would have to give the disclosure to the purchaser by the time it delivered the policy, according to Leslie Jones, a life actuary with the South Carolina Insurance Department.
The proposal also calls for the use of a standard disclosure letter that state insurance departments could send in response to consumer inquiries.
The working group hopes to develop a model act for implementing the disclosure requirement in time for the group to adopt the model at the NAICs fall meeting, regulators said.
Illinois Insurance Director Nat Shapo said a working group subcommittee is also developing an actuarial study to collect more data about small life policies.
Consumer advocates slammed the proposal.
Simply requiring “a disclosure document is a side-stepping of the issue,” said Bonnie Burns, a representative of California Health Advocates, Scotts Valley, Calif.
The small policy proposal is so weak, it might turn some members of Congress away from the idea of state regulation of insurance, according to Kevin Hennosy, executive director of SpreadtheRisk.org, Kansas City, Mo.
But industry representatives and some regulators questioned whether the small life policies are really causing a disproportionate number of problems.
In Arkansas, insurers sell many small life policies, but regulators there have heard “very minimal complaints,” said John Hartnedy, deputy commissioner with the Arkansas Department of Insurance. “We do not have major problems.”
Complaints about small policies have also been rare in South Carolina, according to South Carolina Insurance Director Ernst Csiszar.
Csiszar said the NAIC has heard only anecdotal reports of problems with small policies and needs a study to determine just how common serious problems really are.
If the study results indicate widespread problems, the working groups emphasis on disclosure might change, Csiszar said.
Regulators have been discussing life policies with small death benefits for years.
Opponents say the total premiums purchasers pay often exceed the policies face values or death benefits.
Insurers market the small policies aggressively to poor consumers and rarely try to sell them to “someone who lives in a wealthy white neighborhood,” said Sonia Alleyne, director of community investment with the Massachusetts Affordable Housing Alliance, Dorchester, Mass.