Limited Licenses Mean Limited Choices

By

The National Association of Insurance Commissioners receives many proposals for improving state regulation of insurancesome are worthwhile, others are not practical and are usually forgotten. Perhaps the most inane suggestion to come along in a long while has been the proposal to develop a license that would limit an agents product offerings to term insurance. It is hard to believe anyone would take this idea seriously, but apparently there are some regulators who believe it has merit.

Not surprisingly, the proposal is being promoted by Primerica, the successor organization to the infamous A.L. Williams crowd. In my view, its motive is very transparent. Primerica always has relied upon part-time agents with little knowledge of the full range of life insurance products and their uses.

But I believe the motive goes well beyond the company philosophy that “one size fits all” and that size is term insurance. A term-only insurance license would eliminate the need for a great deal of agent education. Agent education in its case is a twin evil. First of all, it is expensive; but more importantly, the better educated agents become, the more likely they are to reject the notion that term insurance is a cure-all.

There is no fundamental conflict between term insurance and various forms of permanent life insurance. Each has its own particular use and value to a policyholder and so, a major function of the agent is to help prospects or policyholders decide which is best in their unique circumstance.

Limiting the prospect to one choice is not, in my judgment, in the public interest. When helping prospects or clients understand the problems associated with their planning for their family or business, all options usually are explored and an insurance sale results only when other alternatives are found wanting for one reason or another. The solution to problems a person faces may be found with either term or permanent insurance or both. A well-designed insurance portfolio cannot be accomplished with limited options.

Of course, “termites” fall back on the concept that it is better to buy term and invest the difference. This is a flawed conceptnot because it doesnt work, but rather because it is seldom put to work. As an almost 50-year observer of this business, I can state with great conviction that few people I have known have successfully stuck with an investment program of the so-called “difference” for more than a few years. Something always comes up and the discipline to keep going just isnt there.

About 15 years ago I was attending an industry meeting in Florida. I, along with about 20 other people, was invited to take a short cruise on a private yacht. As we sailed along the Florida coast, I sat in the front of the boat with the CEO of a company that sold only term insurance. While we were alone, he said to me, “All my life I have been a firm believer in term insurance and that is all I have ever sold.” He went on to say, “Now that I am nearing retirement, I believe I was wrong and made a great mistake.” He went on to tell me about the changes in lifestyle he would have to make despite a generous company pension. In particular, he mentioned he would not be able to continue his insurance program because of the high premiums at his age and this was very distressing to him because of some personal commitments he was obligated to cover. He also admitted that he easily could have afforded the premiums of permanent insurance during his working years.

I could not help but reflect upon the fact that we were the same age and that the dividends on my permanent policies were almost equal to the premiums. Today, in retirement, my program continues. Most of the cash value has been annuitized and the dividends on the remaining in-force policies are more than 90% of the premium. The dividends on my wifes policy exceed the premiums and have done so for a number of years. If the CEO of a term-only company cant make the system work for himself, then I only can imagine the problems encountered by his customers.

When it was announced that MetLife would purchase the life and annuity business of Travelers from Citigroup, I was elated because I thought that it would be able to bring the Primerica people into the mainstream of our business. To my disappointment, I later learned that Primerica has been excluded from the package to be purchased by MetLife and will still be owned by Citigroupprobably a wise decision by MetLife but not a good one for the insurance-buying public.

I come back to where I started. Limited licensing means limited education for agents and limited choices for the public. I believe it is the duty of regulators to provide the public with well-trained agents and the widest range of viable products.


Reproduced from National Underwriter Edition, April 15, 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.