NAIFA, Primerica Clash Over Term-Only License Proposals
Efforts to establish a new type of license allowing agents to sell only term life insurance products has spurred a debate over whether such a license would limit consumer choice or expand the number of consumers with life insurance.
The National Association of Insurance and Financial Advisors “is opposed to the proposals primarily because they dont serve the best interest of the consumer,” says C. Robert Brown, the groups president. “Rich or poor, consumers need to understand the wide range of insurance products available before making a buying decision. A fully licensed life insurance agent can help find a solution that best suits that individuals needs and circumstances. An agent licensed to sell just one product cant. Consumers deserve better.”
The American Council of Life Insurers has examined the term-only licensing issue but has not taken a position, according to a spokesman.
However, at least one company, Citigroup subsidiary Primerica, has been working actively to establish the term life only license.
According to Peter Schneider, general counsel for Primerica, the company is supporting the term life only license because it sees middle and lower income consumers not being served by the industry.
“We took a look at what the industry is doing with respect to serving the middle and lower income consumer,” he says. “The life industry is basically not doing it.”
Two of the main reasons for this, Schneider explains, are the decreasing number of agents and the development of the industry.
There are 30% fewer life insurance agents than there were in 1989, he notes, and the problem is especially severe in minority communities. In Hispanic neighborhoods, he says, statistics show that as many as 70% of consumers have not even been approached by a life insurance agent.
“The reason they are not purchasing insurance is that there are no life insurance agents in their neighborhood,” he says. “There needed to be a different kind of license for term insurance that would allow agents to serve this market.”
The increasing sophistication of the industry, with a shift to more advanced products, also has led to a downturn for term life, according to Schneider. “Term life has become the unintended casualty of what has happened,” he says.
With the increased focus on more advanced products, regulators began shifting the focus of their educational requirements to those products.
Those educational requirements, according to NAIFA CEO David F. Woods, would be a casualty of allowing a term-only license. “NAIFA objects to these proposals because they lower the standards for agent education and qualification,” he says.
However, Schneider argues that the changes in the industry have made term life a minor portion of the educational requirement and that term life agents would be more specialized in selling the product. Under the proposed new license, “youre actually being trained to sell term life insurance,” he says. “The training of a term agent will be better than before.”
In addition to the education issue, the term-only license also raised concerns for NAIFA in terms of maintaining what uniformity between the states has been achieved in licensing overall. “The proposed term life license works against the uniformity we have worked so many years to achieve,” says Woods. “Less uniformity in agent licensing adds complication and cost to agent licensing requirementswhich is bad for insurance regulators, agents and ultimately the insurance-buying public.”
Schneider, however, notes that the concept of graduated licensing exists in many areas of the financial services arena, such as in securities or mortgages. Effectively, he adds, there would be “virtually no overlap” between those consumers currently being sold life products and those who would be the focus of a term life agent. “These markets dont get served,” he says.
Several states already have some form of limited license, although these are typically on the property and casualty side for such products as rental car insurance, allowing rental agents to offer coverage along with a rental car.
The term life issue has come up in Alabama, Illinois and Mississippi, but a spokesman for NAIFA says “it is going to come up in other states.” The proposed term life license would include separate educational requirements as well as allow only non-replacement sales. Of the specific proposals already in the states, Schneider says that only Alabamas includes all of the provisions Primerica is seeking, but that the company is working to modify the others to be more like the Alabama bill.
Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 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.