To The Editor:
I have been acquainted with Jack Bobo and his thoughtful ideas about the life insurance marketplace for many years. He is experienced and balanced. When he asked Why IMSA? in his June 10 National Underwriter column, I felt he raised a reasonable question. The issue concerns peoples faith in their institutions.
Brian Atchinsons June 24 response concerning IMSAs “demonstrated commitment to high ethical standards” doesnt answer the question about whether the member companies have all met the marketplace standards as measured by the independent assessors. Mr. Bobos question needs to be answered: “Have any IMSA members been expelled or censured for violations?” And, how are the assessors selected and tested to make certain they are qualified? Their independent research and investigative skills must be completely out of carrier influence of any kind.
Following in this line of open discussion, I have some questions about IMSAs requirements for home office administration systems offering post-sale variable universal life service. LIMRA International reported VUL had 38%, the largest percentage, of 2001 market share measured by annualized premium.
I have sold variable life contracts since 1984 and been influenced by the research and writing of Ben G. Baldwin. His revised edition of “The New Life Insurance Investment Advisor” is a standard resource for agents, home office training and consumers. Mr. Baldwin explains that the net amount at risk (particularly if Option #2 or B is driving an increasing death benefit) can get very expensive, as the insured grows older. When you add up the COI, tax costs and fees in the contract, the drain on reserves can be of concern in a volatile market environment. An unexpected lapse would trigger a 1099-R and potential phantom income.
Mel Todd, president and CEO of the Todd Organization said in the June 24 issue of NU, “Clients today demand real-time access to account values. They expect to be able to obtain such information from their personal computer and have these account values viewable with other retirement portal data.”
Mr. Baldwin agrees. He wants industry standards established to allow VUL policy owners and their advisors to manage contract information on the Internet. This information should include basis; current actual costs of insurance and expenses being charged; to which account they are being charged; last policy owners payment into the policy with date and amount and where it was allocated; room for additional capital that can be added to the policy up to the MEC limit and up to the maximum; an asset allocation pie chart; a portfolio allocation scoring system (to recheck attitudes on risk); and the ability to make administrative changes online.
Reading through current sales ideas as reported in the industry press, the concept of selling VUL as a protection/retirement supplement package is very popular. The payment of income-tax-free supplemental income payments using surrender to basis and loans is commonly proposed at the point of sale using company-issued software. The policy must stay in force to allow this strategy to work. Does IMSA have a set of standards regarding the administration systems to support these proposals? A flood of unexpected lapses would be bad for clients, worse for the beneficiaries, and terrible for the public image of the industry. Without a real-time post-sale VUL early warning system on the Internet with the information Mr. Baldwin suggests, the service questions in a demoralizing bear market will be very hard to answer.
Daniel Teas II,
CLU, ChFc, MSFS
Colorado Springs, Colo.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 12, 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.