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May 08, 2005 at 04:00 PM
To The Editor:
Re: Steve Piontek’s Editor’s Edge, “Don’t Hold Your Breath,” April 17.
Few, if any, notable accomplishments arise without great effort. Such may be the case with enactment of optional federal charter legislation. Let’s hope not.
OFC legislation introduced by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D., is a necessity. It represents the best approach to addressing the many regulatory problems that not only beset the industry but affect consumer access to our financial products. A legislative quagmire is not in the interest of companies, producers or consumers.
Frank Keating
President and CEO
American Council of Life Insurers
To The Editor:
Linda Koco’s insightful column of April 3 (“The Insurance Manufacturing Enigma”) prompts me to add my two cents’ worth. The notion that insurance companies are “product manufacturers” represents a fundamental lack of knowledge of: 1) what insurance is; 2) what it is to be used for; and 3) the vital role of trained agents/advisors. The result is the commoditization of the “product” and an increasing vulnerability of its favored tax status.
Insurance is not a product. It is a means of participating in a pool to share risk. The policy is simply the conditions under which the insured participates in the pool and what are the obligations of both parties. It is a unilateral contract that can take on different forms, terms and conditions, but it is not a manufactured product.
Insurance is to be used to protect individuals and businesses from financial loss in the event of certain events. In the case of life insurance these losses traditionally have been those caused by death, disability and old age. It is not a product manufactured for the purpose of financial gain or profit on the part of the insured or owner.
The agent/advisor’s essential role is not as a distributor–a product salesperson–but as an educator and motivator whose job it is to help people decide on what terms they should participate in the risk pool and at what price. And to encourage them to join the pool–now before it’s too late!
Looking at an insurance company as a manufacturer implies a finite source of raw materials. But the only raw materials needed are people facing possible financial loss in the event certain things happen and enough money to pool their resources with others to protect themselves against loss. The supply of this resource is endless. The insurance company holds and manages the pool for a fee. Obviously it is in the best interest of all participants in the pool that their total number be as large as possible so the law of large numbers will apply most effectively. Hence company sales and marketing departments–a good and necessary thing for all. The question of whether a company is a mutual or stock is irrelevant in understanding its fundamental role.
Finally, the “manufacturing” idea presents fertile ground for tax-hungry legislators. Viewing life insurance as a manufactured product clouds the issue of why it should receive any tax advantages. Viewed as a way to share risk makes any question of taxation of insurance benefits seem ridiculous.
Linda Koco has opened up a legitimate subject for discussion. In my opinion, we should collectively cease use of the term “product manufacturing” and call insurance what it is–insurance.
