Inform The Annuity Agent When Bad Stuff Happens At An Insurer
Like it or not, bad stuff happens, even to insurance companies.
In the early 1990s, a rash of life company failures hit. Since then, laws have been enacted to improve dramatically the financial stability of insurers. However, even with the best of oversight, a few companies still have gotten in financial trouble.
Given the proper time, most of them will survive and thrive. The problem is, what do the interested parties do during the “rehabilitation?”
The first priority for regulators, insurers, agents and clients is to protect policy values. Its a slam dunk. Everyone is working toward the same goal. They just have different perceptions on how to do it and “therein lies the rub!”
Clients who own life and health policies seem to take it in stride, weathering the storm very well when an insurer is in peril. But, if the client owns an annuity from a troubled insurer, the fear factor increases considerably, bordering on hysteria.
As the saying goes, the best defense is a good offense. Financially troubled companies should aggressively provide timely and accurate information to agents and clients on plans to restore the companys financial integrity.
If the problem is one that can be solved in a few months, care should be taken not to frighten clients unnecessarily. Still, agents always need to know what is going on.
On the other hand, if the company is receiving bad press and the problem is going to take quite a bit of time to resolve, tell the agents and the clients exactly what the insurer is doing to solve the problems.
These suggestions result from witnessing past financial company struggles. In every instance Im aware of, when the insurer encounters problems, it distributes little or no information to agents or policy owners. The attitude seems to be one of keeping agents in the dark. The companies do usually send a short note stating all is well and not to worry, but there is little substance and no hard facts in those communications.
With no information, agents and clients are left to come up with their own interpretation of whats happening. The natural instinct is to predict the worst-case scenario.
Professional agents take their fiduciary responsibility to clients very seriously and have a zealous desire to offer the best advice possible. But they cant do that in a vacuum. Without the facts, the tendency is to cut and run, with the agent and client taking a “better safe than sorry” attitude.
Agents are between the proverbial rock and a hard place on this issue.
If agents advise their clients to move the money–an event that often inflicts surrender penalties and loss of higher renewal rates–and if nothing then happens to the company, the agent appears to the client as inept and perhaps greedy for a new commission.
On the other hand, if the agent does not tell the client of the problems and the company is placed in receivership with policy values frozen, the agent likewise appears to be inept–and also uncaring.
Agents need help in making proper recommendations to their clients. That information only can come from the home office and/or regulators.
Ive seen situations where companies were placed in rehabilitation and no information distributed to agents or clients for months and even years. That situation is intolerable and cruel.
Clients hound agents for information that is simply unavailable to the agent. In that situation, I blame the regulators from the various departments of insurance.
Complicating matters is the fact that distribution of information from the insurers home office typically is not possible. That is because most, if not all, of the executives and staff have been fired.
If a company is in trouble, and before the regulators step in, it is the direct responsibility of the chief executive officer to make certain that the insurer has distributed reliable and factual information about the situation to the agents and clients. For example, if the CEO has a plan to improve the financial status of the company, its a no-brainer to tell the agents what that plan is.
Another observation: When a company gets in trouble, the home office very quickly starts treating agents as pariahs, unimportant and something to be dispensed with. But, if the company starts to thrive and wants to sell more policies, then the home office executives start trying to woo agents back with sweet stories and inducements.
It would be much easier to get business going again if the insurer kept agents as friends and partners, rather than discarding them like old shoes.
When bad stuff happens to an insurance company, no one likes to talk about it. But it does happen. Thankfully, these are rare events.
True, regulators have strict laws and procedures they can use to solve the financial problems. However, virtually no directions exist for how companies are to deal with agents and clients in a more forthright manner. This is a situation that needs to be rectified.
My best advice to a regulator or CEO of a troubled company is notify the agents and clients every month as to what steps are being taken to safeguard policy values. It is money well spent to shore up faith and confidence in any insurance company.
, CLU, ChFC, is publisher of Fisher Annuity Index, Dallas. E-mail him at [email protected].
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 13, 2004. Copyright 2004 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.