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Life Health > Life Insurance

No Free Lunch

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Over the past week, the U.S. Securities and Exchange Commission has been on a roll, taking on free lunch offers used as bait to lure seniors to what can amount to pressured product sales pitches, and approving new rules regarding variable annuity sales practices developed by the Financial Industry Regulatory Authority (see stories on pages 6 and 7.)

In fact, it has been a whirlwind month for the agency which earlier in September criticized allegedly deceptive professional titles used by producers to sell to older investors.

The free lunch offers should put anyone who has ever heard the old “no such thing as free lunch” saw on alert. Free has its price tag. And it is often a dear one.

But glib marketing and a convincing salesperson can cause even the most skeptical consumers to let down their guard. And, for older consumers who are often prey to the unscrupulous, the risk is even greater.

What applies to consumers also applies to providers of financial products including companies that sell retirement products such as income annuities.

Life insurers are placing tremendous hope in their “unique” ability to sell products that guarantee a smooth financial ride in retirement, particularly if that ride promises to be a long one.

Just this week, KPMG’s 19th Annual Insurance Conference in New York kicked off with an analysis of why solving the longevity dilemma holds great potential for life insurers. Keynote speaker Donna Kinnaird, president of Swiss Re Life and Health America, told a packed room of insurance executives that despite the industry’s recent lackluster financial performance, products such as income annuities and long term care insurance offer great promise.

For companies that “can crack the code,” according to Kinnaird, the future looks bright.

But here is where the free lunch saw comes in. The future looks bright if the public trusts. If the public doesn’t trust, the bill comes due but will be paid in lost consumer confidence, not more business.

Consumer confidence is like anything that is lost. Once gone, it is very difficult to retrieve–and costly, too.

Fortunately, the ray of hope that Kinnaird offered industry folk at the KPMG meeting also shone through in this week’s other insurance news.

At the NAVA annual meeting, for instance, Bob Novelli, executive director and chief executive officer with AARP Services, Inc., spoke words of collaboration. His organization wants to work with NAVA on suitability and consumer financial security issues (see page 8).

Also from NAVA came a general reaffirmation of support for efforts of FINRA (nee NASD) and the SEC to ensure that all annuity sales are suitable. This came in response to news about SEC approval of FINRA proposed suitability rule for VA sales.

And, in a story on page 6 of this issue, you will read how several producers, interviewed at the NAIFA annual meeting, view their companies as having strong checks in place to ensure that products are suitably sold.

Granted a few producers also fear FINRA’s new suitability rule will be redundant and make it harder to do business.

That is consistent with comments submitted to the SEC by the American Council of Life Insurers and the National Association of Insurance and Financial Advisors. The comments, according to this week’s coverage, assert that the new VA suitability rule is unnecessary and that enforcing existing broker-dealer sales practices rules would be the best deterrent to market conduct.

Even if those concerns prove out, those providing retirement products must weigh such costs against the ultimate cost of losing the trust of consumers.

The wary consumer will likely look for insurers willing to pay whatever it takes to build and keep trust. There won’t be any free lunches involved in that. But there will be sure-footed opportunities for lasting business relationships.


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