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Making Sense Of Attacks On Insurance

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Two major challenges are sweeping the insurance shores and it’s the industry’s job to make sense of them. Product professionals can help. Here’s what is happening:

One main trend is that intense public scrutiny is hitting multiple insurance areas, virtually at the same time. The brief, but not exhaustive, tally looks like this:

–Designations: The New York Times published a front-page article skewering misuse of designations in the sale of insurance products like annuities.

–Annuities: The same article spotlighted misrepresentations in sales of fixed annuities. Meanwhile, Nevada is running an ad campaign urging consumers to guard against the “bad animals” who are selling annuities. The NASD and some state securities regulators are continuing to probe fraudulent or troublesome sales involving fixed index annuities.

–Life settlements: Regulators in Florida, Massachusetts and other states are taking steps to curb what they say are abusive practices in the life settlement arena.

–Long term care insurance: Another front-page NYT article, from earlier this year, filleted the industry over complaints about improper LTC claims practices.

–Medicare Advantage: Congressional hearings were held this year on reports of inappropriate marketing of Medicare Advantage plans to the poor and the elderly. Now, Rep. Pete Stark, D-Calif., chairman of the Ways and Means Health Subcommittee, is sponsoring a bill to prevent these plans from charging seniors and those with disabilities more than traditional fee-for-service Medicare.

–Health care insurance: The Michael Moore film, Sicko, released in late June 2007, roughs up the existing health insurance system.

Taken individually, these developments might seem like sucker punches, leaving no more than a black eye that will heal quickly. But taken collectively, they have pummeled the industry’s image, big-time.

Meanwhile, there is the problem of marketplace penetration. Some insurance products just aren’t gaining ground.

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For instance, in a 2005 study of firms with 100 or fewer employees (no owner-only firms), LIMRA International found that 52% offered at least one group insurance benefit–down from 73% in 2000. Only 36% offered pension or retirement savings plans–down from 43% five years earlier.

By line, LIMRA found that only 9% of the firms offered defined benefit plans, 29% defined contribution plans, 22% vision plans, 21% long-term disability plans, 22% short-term disability plans, 26% group life, and 26% group dental. Medical insurance fared better–LIMRA found 50% of small businesses firms offered it in 2005. (The Henry J. Kaiser Family Foundation found 59% of firms with 1-199 employees offered health insurance in 2005.)

Such numbers are sobering, since small business employs about 50.6% of the private sector workforce, according to the U.S. Small Business Administration, June 2006. (Note: The SBA defines small business as under 500 employees, so the workforce percentage is bound to be lower than 50% if considering under-100 firms.)

It goes without saying that such numbers spell opportunity for those interested in expanding insurance sales. However, in view of the recent spate of negative news, such expansion efforts will likely encounter plenty of skepticism among buyers.

Many industry critics charge that the industry’s problems are so systemic as to be intractable. Therefore, they keep saying the government has to fix it.

Oh really? The industry has legions of talented product and sales experts who are quite able to come up with solutions for problems that virtually everyone agrees need addressing. These are people who run the products and know what to do. Even better, they are used to working collaboratively with multiple stakeholders.

What they need is a commitment–in dollars and sense–from their respective firms to dig into the problems. In certain areas, their efforts may call for an alliance with government, but that doesn’t mean the government will have to take over.

Recent examples include the rollout, in the health insurance sector, of basic and/or limited benefit plans that could help some of the uninsured obtain affordable coverage. Something similar is happening with LTC products. Furthermore, LTC partnership programs are now expanding, complete with training requirements for advisors–this in tandem with government.

Granted, such steps are incremental. But that can help take the edge off–and still leave room for big picture innovation.

When attacks on insurance are unmerited or have glaring inaccuracies, it’s good to note them, even to point them out. But, the industry still needs to deal with whatever is not working. It needs to respond–with visible, targeted and appropriate action. That won’t be easy, but the alternative is worse.