No doubt it was only a matter of time that the nation would see the word “transparency” included in the title of a bill before Congress.
And there it is–the Wall Street Transparency and Accountability Act, which just passed the Senate Agriculture Committee in mid-April. It was sponsored by Sen. Blanche Lincoln, D-Ark, chair of the Agriculture Committee.
That should come as no surprise. The T-word has become so commonplace that not a day goes by that someone in Congress, state regulation, and/or business does not dangle it before the public eye.
It’s popping up in insurance products, too. The question here is, is the term widely understood in the insurance context and does it add value? Let’s unpack it.
The word is circulating in insurance in a number of ways.
Many new insurance products tout transparency as one of the policy’s redeeming features. Examples: “This policy is not only flexible; it’s transparent.” “You can see clear through.” “It’s so transparent that you can go to a password protected website to see all your policy values, 24/7.”
Transparency is a frequent focal point in many state insurance regulatory efforts, too. The regulators often call for transparency of data to support health care rate increase requests, for instance, or in sales literature that describes complex policy features and financial guarantees, even for fees in settlement transactions.
(As fate would have it, transparency inquiries sometimes go the other way and slam the regulators–as when the Center for Economic Justice, Austin, Texas, recently criticized the National Association of Insurance Commissioners for not using a more open process to develop revisions to its Suitability in Annuity Transactions Model Regulations.)
Many legal actions involving insurance sales now lean on transparency issues. For instance, attorneys commonly seek to ferret out what was “hidden” in the transaction–i.e., what was not transparent? What commissions were paid, to whom, when, and where? Were the policy fees fully disclosed to the buyer? Was the customer clearly informed that rates could go up in future years? And on and on.
Consumers’ eyes are trained on insurance transparency, too. For instance, 70% of over 3,500 consumers surveyed recently by Accenture say that “transparent pricing” is a key criterion for choosing an insurance provider.
Anyone who has been in the insurance business for a few months cannot have missed this linguistic tidal wave.
But do advisors and insurers and other industry players agree on what constitutes transparency in insurance products? It’s a good guess that most people understand transparency to mean clarity. But when it comes to insurance products, that clarity appears to be in the eye of the beholder.
The insurance industry has tried to respond to calls for greater transparency by increasing the disclosure of a policy’s features. Examples include: the 100+page prospectuses offered with variable policies, the short-form (simple) disclosure forms that accompany variable prospectuses, the use of plain English policy forms and sales literature with all kinds of insurance products, and extensive use of explanatory charts, graphs and websites.
In addition, many insurance agents and advisors now complete extra training and certification programs before they start selling certain products–so that they can discuss the products and customer need for same clearly.
A few carriers have debuted simpler policies that do not require so much explanation in the first place. Such products may have very low policy fees, fewer or cheaper options, few or no moving parts, or more streamlined designs. Many, though not all, target the mid-market, leaving the more complex designs for sale to more sophisticated buyers.
But legislators, regulators and litigators do not seem to be satisfied with such efforts. Repeatedly and incessantly, they have been calling for “more transparency” on fees, commissions and pricing, depending on the product.
These demands take the transparency discussion to a place where private enterprise is not willing to go, given that it invites prying into what the firms describe as proprietary processes.
There is the rub. One party’s view of transparency is another party’s sense of unwarranted invasiveness. Once a dispute breaks out at this level, the lawyers step in an effort to reveal the “bright line” of where transparency begins and ends.
Insurance people and firms that are racing to put transparency into product descriptions and promotions might keep that in mind. What seems like a crystal clear stream might lead to a very muddy river.