It appears that the after-hours trading scandal that is tearing apart the mutual fund industry is spilling over into the life insurance industry.
Both variable annuities and variable life insurance will be affected. That has implications not only for those in the senior market but for all marketers of these products.
This is a time for insurers, money managers and distributors of variable insurance to take a long, hard look at their practices and procedures to ascertain if they have problems, and to institute remedial action, no matter how painful.
The life insurance industry always has prided itself on being “squeaky clean” in its compliance with Securities and Exchange Commission requirements. Moreover, the issue of compliance with the “forward-pricing” requirements of the Investment Company Act of 1940 is so fundamental to the regulatory structure of regulated investment companies that no one could contemplate that anyone could misunderstand them.
Because of their reputation as good corporate citizens, life insurers always have enjoyed a relationship of trust with the SEC. Any breach of this trust that is demonstrated by the investigations of after-hours trading will require severe remedial action if that trust is to be restored.
When selling variable annuities and variable life, the industry also engages in a relationship of trust in dealings with other peoples money. These funds often represent life savings, which will most certainly form an important element in the retirement security of customers. Therefore, it is not morally acceptable to take short cuts that may give some investors an unfair advantage over others who have placed trust in the industry and its products.
Everyone involved in the manufacture, sale and money management aspects of the variable insurance business should immediately investigate their operations to ensure they are compliant not only with the letter of the law but also with the spirit.
Granted, the insurance business is competitive. But no amount of competitive advantage in obtaining sales can justify betraying the trust reposed in the industry by its customers.
To be sure all legal requirements are met, we recommend supplementing these internal investigations with inquiries performed by outside experts such as independent accounting firms and outside law firms. Even those within the industry who have done nothing wrong should have independent verification of that fact for the public record.