Industry Stews Over WSJ COLI Articles
Call it the “power of the press.”
A series of articles in the Wall Street Journal over the past year is having a significant impact on the legislative debate over corporate-owned life insurance, industry officials say.
Indeed, says Albert J. “Bud” Schiff, president of the Association for Advanced Life Underwriting, Falls Church, Va., the impact has been “dramatic.”
He says he believes Sen. Jeff Bingaman, D-N.M. was very heavily influenced by the WSJ articles when he introduced legislation last year that would tax proceeds from COLI policies covering employees who have not been with their employers for more than one year.
Schiff, who is president of NYLEX Benefits, Stamford, Conn., says he believes a number of members and staffers on Capitol Hill have been influenced by the articles.
One problem, he says, is that COLI is not well understood on Capitol Hill. AALU, he says, faces a major task of trying to educate members and staff on the rules surrounding the product.
Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, agrees that the articles are helping to drive the debate.
The problem, Dolan says, is that the articles focus on events that took place many years ago, before the 1996 changes in COLI were enacted. “The product has been revised extensively by Congress,” he says.
All the anecdotes about alleged abuses, he says, come from the earlier period. The reporting, Dolan adds, reflects old issues and, unfortunately, is being misperceived as representing problems of today.
All the negative reporting, Dolan says, is having a “chilling effect” on a product that addresses real issues in the lives of businesses and their employees.
There has been a lot of communication with staffers on the tax-writing committees, Dolan says, to remind them of the changes they enacted in 1996.
At the same time, AALU and ACLI have been sending letters to the WSJ criticizing the articles, but so far only one ACLI letter has been published and that was about a year ago.
In a Feb. 19, 2003, letter, from AALU, which was not published, Schiff says a WSJ article entitled “Insurance–Profiting When Employees Die,” is misleading.
In addition to focusing on pre-1996 situations, Schiff says, the article ignores current practices.
“Industry practice for some time has been to obtain prior consent of employees, explain the reasons for the insurance, and let them know that the employer may keep policies in force after termination of employment,” the letter says.
The letter adds that the National Association of Insurance Commissioners adopted guidelines in 2002 recommending that states make the consent and notification practices uniform.
In addition, Schiff takes issue with the characterization of COLI as a “tax shelter.”
“In fact,” he writes, “whether used by individuals or businesses on their behalf, life insurance is a proven way for after-tax money to enhance long-range planning and security.”
In a Jan. 3, letter, which also was not published, ACLIs General Counsel Gary Hughes says life insurers “take umbrage at any suggestion that business life insurance is a questionable financial product, one aimed at secretly leveraging the lives of employees to beef up balance sheets.”
Indeed, Hughes writes, the Office of the Comptroller of the Currency has pointed to business life insurance as a prudent choice for banks as a financing or cost recovery vehicle for pre- and post-retirement employee benefits.
There was no word at press time on whether the WSJ plans to publish any of the recent industry letters.
In health news, medical malpractice legislation strongly backed by the Health Insurance Association of America, is expected to be approved by two committees in the House this week and possibly go to the House floor during the week of March 10.
The legislation, H.R. 5, would place a $250,000 cap on noneconomic damages in medical liability cases. The bill will be before the Energy and Commerce Committee and the Judiciary Committee this week.
Industry lobbyists say they expect the bill to pass both committees following a highly partisan debate.
Meanwhile, the outlook for medical malpractice legislation in the Senate is more questionable.
One industry lobbyist tells National Underwriter that top Senate staffers say a $250,000 cap will never fly.
Also on the health front, the Association of Health Insurance Advisors, Falls Church, Va., is praising the National Governors Association for efforts to prevent legislation creating Association Health Plans that would be exempt from state insurance regulation.
President Bush supports AHPs, which would allow associations to establish group health plans covering their members. AHPs would have to meet certain federal financial standards, but would be exempt from state laws, including mandated benefit laws.
NGA says AHPs would exacerbate the challenges currently faced by state regulators.
AHIA President Richard L. Harlow says AHIA, which is an affiliate of the National Association of Insurance and Financial Advisors, appreciates the NGAs efforts.
Exempting AHPs from state regulation, he says, would position AHPs for price advantages over state regulated plans, creating an unlevel playing field.
NAIFA CEO David F. Woods adds that unregulated AHPs would create an environment for fraudulent operations.
“Whats good for the goose should be good for the gander,” Harlow says. “Lets not further segment the market by creating separate rules for AHPs.”
Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 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.