In 1996, the life and health insurance industry founded the Insurance Marketing Standards Association (IMSA) to strengthen consumer trust and confidence in the marketing of its products. The organization is voluntary and requires its members to meet certain standards, particularly in sales practices.

The early days of IMSA were a bit bumpy and I–along with others–was very critical of the way it was executing its mission, and I said so in this column. I attended one of the first classes to train IMSA assessors, the group that was to monitor companies’ adherence to their published standards. My early criticism centered on the fact that most of the criteria for company membership in IMSA dealt with internal procedures and processes relating to policyholder service. Slow service may be aggravating, but it would have to get awfully bad before it would be regarded as unethical.

The primary target where ethics plays a part is the sales process, which includes advertising content, training of producers, sales material and supervision. In the training session I attended, almost all of the prospective assessors in attendance were employees of accounting firms. Based upon the questions and comments coming from them, it did not appear that they had any knowledge of what took place in the field–where company and consumer actually meet, usually through an agent intermediary. How can you judge what you don’t understand? I believe these were valid concerns, and at the time I was critical, it was justified.

More recently, at a meeting with Brian Atchinson, IMSA president, and Friar Fitzgerald, executive vice president for corporate relations, I was delighted to learn that many, if not all, of these concerns have been addressed. In particular, assessors must now have industry experience to be approved by IMSA. It was clear to me from their comments that use of accounting firms in monitoring the sales process had not been successful. In reviewing the material they left with me, it would appear that today IMSA is a more forward-thinking organization than it was 10 years ago and is focusing on the critical areas where ethical standards are needed. To wit–the marketplace.

Brian and Friar were kind enough to ask if I had any input to further improve the organization. My primary input was to congratulate them for the progress they had made and to urge continued emphasis on sales practices–not just at the agent level, but all the way up the corporate ladder. Too often when abuses occur at the point of sale, the culprit singled out is the agent, and that is the end of it. More attention should be given to who trained the agent to do the “the wrong thing” and what role the top brass played in either encouraging or tolerating the practice.

A situation that exists today will, I believe, illustrate my point and will also show the way issues in our business evolve.

In 1977 the National Association of Insurance Commissioners undertook the task of updating the model regulation on policy replacement. I had the privilege of serving on the industry advisory committee that helped the NAIC rewrite the regulation. In the discussions by the committee (almost 30 years ago) there was already a beginning of the realization that detecting inappropriate replacement of policies by the simple measure of mathematical comparisons would soon be obsolete. That is so true today when there are so many products on the market that have few, if any, guarantees.

Since my retirement I have been involved as an expert witness in a number of insurance-related cases. About half of them have involved replacement of policies. It is almost impossible, if the replacer is clever enough, to make policy-by-policy comparisons. The replacer seldom replaces like policies, and who is to say whether non-guaranteed expectancies will materialize?

I have also observed that so long as the agent declares that a replacement is being made, supplies the requisite forms and notifies the other company, the business is readily accepted. In all of the cases where I have been involved, the agent was switching companies and taking large portions of his old business to the new company. In this instance, there is no one to protect the consumer: The company can’t send someone out from the home office to defend the existing policy, other agents do not have the time or duty to do so, and therefore the replacing agent operates with no opposition.

To deal with this, our committee in 1977 developed the concept that “patterns of replacement” were probable cause to suspect inappropriate or illegal replacements and a way to spot predatory producers. As a consequence, most, if not all, insurance codes have a provision that requires insurers to monitor the ratio of a producer’s replacement business to total business in order to detect such “patterns.”

I am not convinced all companies are observing this section of the code, and it is a section that would be particularly difficult for regulators to handle. Perhaps this is one area where IMSA could play a significant role. Maybe there should be a company standard that measures the ratio of replacement business to total business. It is no secret–there are predatory companies.