There’s Never A Shortage Of Outrage On Capitol Hill

When it rains, it pours.

No, this is not a pitch for Mortons salt. Rather, were using the line to describe the thundershower of tax issues that recently pelted the industry.

The life insurance business has been hit so often with attacks on its products and techniques that any new attack seems like d?j? vu all over again. And it is for this reason that the industry–with good cause–stands always ready to repel these attacks.

The latest brouhahas are the attacks on corporate-owned life insurance and split dollar.

The flap over COLI arose after the Wall Street Journal ran an article–and then followups–on so-called “janitors insurance.” This describes a situation where employers take out life insurance policies on low-wage workers and collect the death benefits when the workers die.

Many times, the workers are unaware that the employer has such a policy on their lives. It is this rather ghoulish factor that has given rise to the utterly predictable outcry from members of Congress.

Within minutes, it seemed, Rep. Gene Green, D-Texas, introduced the Life Insurance Employee Notification Act, which would require corporations who take out COLI policies to inform employees and reveal the amount of the policy.

“This bill will stop corporations from hiding these policies and force them to let their workers know that their employer stands to gain hundreds of thousands of dollars if they die unexpectedly, while their survivors receive nothing,” Green says.

The fact is, the major company association–the American Council of Life Insurers–and the major agent association–the National Association of Insurance and Financial Advisors–both support the position that employers should give employees notice and get their consent before taking out such policies.

These two groups would be well-advised to get ahead of the issue and encourage the National Association of Insurance Commissioners to take it up at the state level where it properly belongs.

The flap over split dollar arose after it was revealed that Enrons former chairman, Kenneth Lay, had a large split-dollar policy. Naturally, there was concern among members of Congress about this supposed outrage and just as naturally, there came calls for a hearing on split dollar.

When someone who was scheduled to testify on split dollar at a Senate Finance Committee executive compensation hearing cancelled his appearance at the last minute, Sen. Blanche Lincoln, D-Ark., had a fit and demanded a separate hearing devoted only to split dollar.

We are second to none in our disgust with Enrons business practices and its treatment of its employees retirement funds. And while we are unaware of the details of Mr. Lays policy, what concerns us is the automatic tarring of anything and everything that is in some way connected with Enron.

But lets face it, no politician worth his or her salt (Mortons or otherwise) could possibly pass up an opportunity that looks tailor-made for righteous indignation.

These incidents should, we believe, give pause to those who clamor for federal regulation of the insurance business. Their argument is that it is better to do business with one regulator than 50.

However, considering the ease with which insurance can become a political football, we think that being overseen by 50 regulators looks a lot better than being subject to the outraged and indignant regulation of some 535 grandstanders on Capitol Hill.


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 13, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.