Producer Advertising Session at IAdCA in March

Excerpt from Insurance Compliance Insight, Jan. 30, 2012 posting:

“Materials, Regulatory Impacts on Insurers, Fraud Management

It is one of the most critical areas of insurance advertising, yet one that not every company addresses properly.

We’re talking about the review of producer-generated advertising and marketing materials – an evergreen issue on regulator’s watch lists that can lead to sanctions if an insurance company doesn’t have a good compliance plan to monitor them.

If your company doesn’t have one, or it could be improved, consider attending the annual meeting of the Insurance Advertising Compliance Association. The IAdCA meeting is March 28-20 at the Hyatt at Olive 8 Hotel in Seattle, and will feature a session about producer advertising from industry compliance expert Cailie Currin, president and CEO of Currin Compliance Services.

It is one of three industry meetings in the next few months that should be of interest to compliance professionals. Also coming are the annual meetings of the National School on Market Regulation and the Insurance Fraud Management Conference.

The IAdCA is ideal for those involved in the creation and compliance review of advertising and marketing materials. It’s the best place there is to find out how to meet legal, compliance and marketing requirements and still preserve the sizzle in your company’s marketing materials.

Knowing what producers are saying in the marketplace is one of those compliance requirements that can’t be ignored. “If a company doesn’t know what’s out there, they could have a liability issue,” warns Currin, whose company has a staff dedicated exclusively to advertising and producer compliance. It sees a lot.

“Regulators are looking at invitations to sales seminars, and companies should, too,” she said. Insurers should also watch to see how their producers are referring to their products.

“We look at ads that no one else is reviewing regularly and see producers not calling annuities what they are – annuities. Instead, we see them calling a fixed indexed annuity a ‘safe money account’ or a ‘smart money account,’ rather than what it is.” Currin says she and her team also have seen producers discussing guarantees that could be misleading as they pertain to what’s actually guaranteed in the insurance or annuity contract. One common problem: comparisons of insurance products to certificates of deposit.

Currin will be discussing ways to address such issues, and her presentation will be packed with examples of producer advertising, both good and bad. She said the presentation will be “on an advanced level,” so expect more than Producer Advertising 101.

Also on the IAdCA agenda are several sessions about social media, a regulator panel featuring Leslie Krier of Washington and Jim Mumford of Iowa, who will talk about advertising filing procedures, advertising violations, specific state advertising regulations and what is expected of companies doing business in those states.

The meeting will also feature discussions about:

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  • fixed and variable life insurance and annuities;
  • health insurance;
  • long-term care insurance;
  • property & casualty lines;
  • state market conduct issues and developments;
  • variable product advertising;
  • Internet advertising compliance;
  • threats associated with today’s technologies and how to use them responsibly.

The meeting also features a keynote speech about leadership by Howard, Behar, one of the founders of Starbucks. Register by Feb. 8 and you’ll have a chance to win one of 10 copies of his book, It’s Not About the Coffee: Lessons on Putting People First from a Life at Starbucks.

Registration information and the agenda are on the IAdCA website. Registration is $575 for first-time attendees and $475 when more than one person is attending from the same company (with a $50 discount for those who have attended previous IAdCA meetings).”

The Importance of Expertise

The InvestmentNews column posted on Jan. 22 by Matthew Grove and John Moninger leads with: “Financial advisers who view 2012 as an opportunity to develop an expertise in retirement income planning will reap benefits to their practices and will be well-positioned to lead the industry over the next 20 years as baby boomers move from the accumulation phase of retirement planning to the spending phase.” They state that their conclusion is based on a recent survey by LPL Financial, LLC and New York Life/MainStay Investments. That survey is reported to state, among other things, that “about three in four retirees who use a financial professional indicated that they have consolidated their savings and investments with their primary adviser.”

While this business opportunity seems real and significant, the most important part of the opening of this opinion piece is, in my opinion, the need to “develop an expertise in retirement income planning.” Unfortunately, it is much easier to see the opportunity than it is to develop an expertise in retirement income planning. And there are many compliance issues that arise when there is a focus on retirement income planning without the appropriate expertise.

In addition, for life insurance agents, the consolidation of savings and investments with the primary adviser presents issues that go beyond the expertise. For a life insurance agent, a client that wants to consolidate also presents source of funds issues. It takes tremendous discipline to tell a client that wants to move from a securities investment to a life insurance product that the life agent cannot generally recommend or actually move funds that are currently in securities to insurance products without raising source of funds problems. An agent that succumbs to that enticing prospect could face fines, loss of license and other disciplinary actions!

NAIC Sends Mixed Message on Life Insurance as Investment

In a January 4, 2012 press release, the NAIC released results of a recent survey the organization conducted. The release reports the finding that 63% of the consumers polled had life insurance. The release further quotes North Dakota Insurance Commissioner Adam Hamm, chair of the NAIC Life Insurance and Annuities Committee as saying: “According to our survey, more than two-thirds of consumers don’t know some types of life insurance include a cash value, and nearly half don’t think of life insurance as an investment option.” Hmmm. A major reason why consumers don’t think of insurance as an investment option is that insurers and insurance producers are generally concerned about using the term “investment” to describe insurance – particularly when making comparisons to other possible ways to allocate personal financial resources. Because of concerns over licensing and source of funds, producers are often prohibited from selling most life insurance as an investment option because it raises the possibility that the consumer will confuse “investment” with “security.”

The NAIC Advertisements of Life Insurance and Annuities Model Regulation (Model 570) states in section 4.B that:

No advertisement shall use the terms “investment,” investment plan,” “founder’s plan,” “charter plan,” “deposit,” “expansion plan,” “profit,” “profits,” “profit sharing,” “interest plan,” “savings,” “savings plan,” “private pension plan,” “retirement plan” or similar terms in connection with a policy in a context or under such circumstances or conditions as to have the capacity or tendency to mislead a purchaser or prospective purchaser of such policy to believe that he will receive, or that it is possible that he will receive, something other than a policy or some benefit not available to other persons of the same class and equal expectation of life.

Time and experience have shown that when discussing the “investment” aspects of insurance policies, insurers and producers become vulnerable to disciplinary and legal action. Consumers and consumer advocates often say that when the investment elements of life insurance and annuities are discussed in the sale that consumers don’t understand they are buying insurance. Suitability and Compliance Officers have been saying that the accumulation features of insurance and annuities cannot be described as an investment to be sure that consumers understand they are buying insurance protection.

In addition to consumer understanding that the product is insurance first and foremost, there are problems that arise for producers when discussing insurance as an “investment.” Those relate to licensing. The state of Iowa has addressed the issue most comprehensively in a Bulletin dated June 24, 2011. In the introduction, Commissioner Voss states: “For purposes of this Bulletin, “Insurance-Only Person” means an individual who holds an Iowa insurance license that authorizes the sale of annuities or life insurance products and who is not Iowa-licensed as an investment adviser, securities agent or investment adviser representative under Iowa securities law.” Commissioner Voss says that a “Securities-Only Person” means “an individual who is licensed as an investment adviser, securities agent or investment adviser representative under Iowa securities law, and who is not Iowa-licensed as an insurance producer under Iowa insurance law.” The dichotomy is established between insurance and investment by the license held. To avoid confusion on this issue, producers are taught to avoid calling insurance an investment so as to be clear that they hold the appropriate license.

Insurance-only persons are specifically prohibited from holding themselves out as licensed to provide “investment advice.” If insurance producers are not able to provide investment advice, they are walking a dangerous line to discuss the investment side of insurance products. As a compliance consultant, I regularly tell my clients that they should not use the word investment to describe the accumulation or cash value features of insurance products because, in my opinion, there is a regulatory risk in doing so. My advice is to use the insurance terms or a generic term like “financial product” rather than investment. The Iowa Bulletin concludes: “Persons who solely provide insurance advice as discussed in Section I of this Bulletin, and who disclose that fact to the consumer, should not be concerned with investment adviser or investment adviser representative requirements.”

While the NAIC release discusses whole life and universal life, in addition to variable life and variable universal life, it concludes with the statement that: “Purchasers should consult a licensed investment or tax advisor for guidance on which permanent life policy best fits their risk tolerance and investment objectives.” While that seems to be generally consistent with the Iowa Bulletin’s statements with regard to investment advice and investment advisors, it does seem to leave insurance-only producers out of the equation.

If the NAIC really believes that “permanent life insurance policies that build cash value may be a way to add stability to a financial portfolio and accumulate funds over the long-term,” we need to continue the discussion about what insurance-only producers can say about these features of permanent life insurance policies. If “65% of survey respondents did not know that some types of life insurance include a dollar amount that is guaranteed to increase in value and may provide tax benefits” and there is a public policy benefit to that discussion, then we need to figure out how to balance the interests of making sure that consumers know that the product they are buying is a life insurance policy or an annuity with the need to discuss the investment elements of the insurance products. People can’t know about the investment features of some life insurance policies if those that sell the policies can’t discuss those features as investments without running the risk of disciplinary action against them and the companies they represent.

AICP – NE Chapter Spring 2012 E-day in Sturbridge, MA?

On Friday, December 9, five of us from Currin Compliance Services, LLC attended the New England Chapter of the Association of Insurance Compliance Professionals business meeting in Sturbridge. Kathy Donovan from Wolters Kluwer gave a great presentation on what happened in the world of insurance regulation in 2011 and what 2012 may bring. The networking event was a Yankee Swap, which was lots of fun. In our group, we had a couple of people thrilled with the gifts they ended up with, a couple disappointed with what they had, then lost … and me. I kept the gift I opened and no one took it. My gift was something I would never buy myself, but when dropped in my lap, I was happy to have them! 

This year I am vice president of the NE Chapter. As many of you know, that means I am responsible for planning the Spring 2012 E-day (with LOTS of help from a wonderful committee of volunteers, of course!).  In talking to some folks at this business meeting and looking at the great turnout, we thought Sturbridge might be a perfect location for the New England AICP E-day. It is easy to get to for the majority of those who would drive from within the NE Chapter.  Those of us in ME and upstate NY may have the longest drives, but I am wondering about our friends in Toronto? Would you come for E-day in Sturbridge, MA, or is it too far from an airport for a one-day conference? Anyone else have comments/concerns? Think it’s a great idea? 

Please comment here or let me know by e-mail if you want your voice heard! Planning begins in earnest after the holidays. 

Of course, there are lots of opportunities to volunteer, too. Have an idea for a break-out session? A speaker or panel? Bring it on! Let’s make this another fantastic E-day in New England. 

Need for Compliance is Growing, Especially for Small Firms

A common theme in the materials submitted through our Advertising and Producer Compliance Department is “these times, they are a-changin’.” While the ads are focusing on planning out one’s financial future in a world with new norms, this warning can be applied equally to the world of compliance for small firms.

Mark Schoeff, Jr.’s recent article “‘Enforcement Wave’ heading for advisers: Ex-SEC official” from Investment News discusses the new enforcement actions by the Securities and Exchange Commission (SEC) against investment advisers. It is another example of how the area of compliance is growing in all areas of financial planning.

The article highlights some of the major fines that have been levied just over the past few weeks. For example, “the SEC charged three hedge fund advisory firms and six individuals with improper use of fund assets, fraudulent valuations and lying about fund returns.” Mr. Robert Khuzami, director of the SEC’s enforcement division, says that some examples of the biggest areas being targeted by the SEC are “advisers who lie about graduating Phi Beta Kappa, conceal their association in a past failed business venture or inflate their assets under management, who might well be the same persons who outright steal your money when the markets turn against them.”

However, it’s not just blatant lying that can get you in trouble. There are penalties that can be levied just for having inadequate or non-existent compliance procedures. While these fines, anywhere from $50,000 and up (not including any customer restitutions, which may start at $100,000), may not seem very steep to large firms, they could be potentially devastating to small firms.

One thing that this type of action could lead to is a real distaste for compliance. I cannot emphasize this enough though: compliance is your friend! It is not about limiting what you can do; it is about protecting yourself from losing your livelihood. Times ARE changing, in both how we plan for our financial futures and in how those services are provided. By creating and following compliance procedures and policies, you are sending a positive message that elevates the standards of the whole industry.

Stay tuned for upcoming posts about specific compliance policies and procedures that can help protect your business and your livelihood.

FINRA Speaks Out On Senior Designations

In FINRA’s Regulatory Notice 11-52, firms are called upon to update (and in some cases create) their supervisory procedures regarding the use of senior specific certifications and designations. The notice also includes survey results taken from various broker-dealer firms about how they use and supervise senior designations.

The survey findings indicate that there is widespread use of senior designations among registered representatives. It’s also clear that there is not much consistency in existing supervisory standards to determine the approval of a designation. It is up to firms to put into place their own measures to comply with supervisory obligations. FINRA’s survey shows that of the 68% of firms that allow senior designations, 66% require approval and verification of credentials. However, 11% do not require any approval and do not verify credentials. FINRA itself has a list of designations available on their website, none of which they endorse. They also state: “Nor does a designation’s inclusion in this database imply that FINRA considers the designation to be acceptable for use by a registered representative.” As Mad-Eye Moody (any Harry Potter fans out there?) says, “Constant vigilance.”

While some may feel that too much regulations may lead to firms playing it safe by banning designations altogether, I come back to this question: How would I feel if one of my relatives ended up talking to someone in the 11%? There is a chance that that individual is being honest and truly has the knowledge and expertise to work with senior needs, but there is also a chance that they’re not.

The same goes for insurance producers. While many states have regulations set up stating that senior-specific certifications or designations are not allowed if they’re self-conferred, not actually earned or if they’re issued from an organization who is primarily engaged in the business of sales or marketing etc., our Advertising and Producer Compliance Department sees a lot of advertising that uses titles as general as “retirement specialist.” Again, constant vigilance.

Advertising compliance is always walking that fine line between being full disclosure and effective marketing. With baby boomers heading into retirement age, combined with many who fear investing their money in the stock market or mutual funds, a powerful demographic and target market has been created for annuities and insurance. Everyone, it seems, is suddenly a “retirement specialist.”

FINRA’s Regulatory Notice does offer some examples of sound practices that some firms use and others may want to adopt. Many state insurance departments have spoken to this as well. For example, in determining if a designation could be used, some firms review course work, other prerequisites and continuing education requirements prior to approval. Some firms rely on state requirements and others simply allow only a few select designations.

The notice goes on to suggest that firms may “reduce the risk of confusion or over-reliance by their customers by implementing procedures aimed at only permitting their registered persons to use senior designations that instill substantive knowledge to better serve and protect senior investors.” That sounds simple enough to me.

With Regulatory Notice 11-52, FINRA is ultimately creating awareness of an area that is of growing concern and needs consistent attention. On the insurance side, many states have bulletins or regulations that outline what is and what is not acceptable in this area. For both registered representatives and insurance producers, the standards are now essentially the same. This is an issue that will most likely continue to remain in the regulatory consciousness and both broker-dealer firms and insurance companies can’t ignore. While many are moving toward more consistent supervisory procedures, there is still more work to be done. This notice provides us with a helpful reminder to take a look at our practices and strengthen and improve them. Constant vigilance.

Health Plan Summaries to include Balance Billing?

In a December 2, 2011 piece for LifeHealthPro, Allison Bell writes about the new standardized health plan guides that are required under PPACA. Most of the article is about the delays in the process of developing the Summary of Benefits and Coverage (SBC) mandates and the industry response to these. Ms. Bell states that:

“The concept is popular even with many Republicans who hate PPACA. Analysts at the Henry J. Kaiser Family Foundation, Menlo Park, N.J. recently surveyed Democrats and Republicans about PPACA and found when they asked about major PPACA provisions that the concept of requiring health insurers to provide standardized, easy-to-understand plan summaries had the support of 76% of the Republicans they polled.”

That said, there are still questions about what should go in the SBC and whether all plans and markets would be subject to the requirement. Ms. Bell reports that regulators want consumers to be able to use SBCs to compare plan provisions such as deductibles and co-payments as well as to compare the total out-of-pocket costs for some specific conditions. She also reports that consumer representatives note that there are many consumer complaints regarding the practice of balance billing.

This is something that I have had some recent experience with as a consumer’s advocate. Regular readers of this blog may know that my father is being treated for ALL – Acute Lymphocytic Leukemia. In working through all the insurance issues associated with his care and treatment, I have seen a different side of health insurance than I had previously. Up until my father’s diagnosis, I had made routine use of my own insurance. I provide health insurance for my full-time employees, and have asked for little contribution from them towards that coverage. So I have watched the premiums climb, as have all employers. Every year I have gone through a process of comparing plans to try and figure out the most cost-effective coverage for my business, my employees and my own family.

But until my father’s illness, I did not factor in the possibility of balance billing. I simply was not aware of balance billing. Perhaps I should have been, but the health insurance that we do here is limited – just to the kinds of policies that life insurance companies issue. We don’t represent health insurers; we represent life companies who also write some limited lines of health coverage. So when I was pouring over all the tables of co-pays and deductibles for the health insurance I was buying for my employees, and myself the truth is I didn’t know about balance billing. I didn’t know that out-of pocket caps weren’t really caps from the consumer’s perspective. They are only limits on what the insurer requires an insured to pay, but that doesn’t mean the out-of-network provider isn’t going to bill the insured directly for the difference – the balance – between what the insurer pays them and the full price of the service. There are no limits on that potential liability.

On this, I think the consumer representatives in this discussion have a strong argument that the SBCs are the place to explain and provide examples of how balance billing might operate if a patient receives out-of-network care. The example they suggest is one where there is an in-network ER visit when the ER physician is out-of-network. In my father’s situation, it was the hospital that was out-of-network and the physicians who were in-network, though they only had privileges at the out-of-network hospital. My father ended up having to change physicians so he would be admitted to a different hospital. He has gotten excellent care all along, but many of his treatment decisions have been based on balance billing exposure and none of us even knew it existed until he got sick.

If balance billing isn’t included in the SBC, is there another way consumers can be made aware of this issue?

Insurance Law Community's Top Insurance Blogs 2011 Honoree

We are proud to receive this honor again. Thank you to all of our readers for your continued support and input.

From LexisNexis … 

“After some very careful review and a great deal of deliberation, the LexisNexis Insurance Law Community has selected its Top Insurance Blogs for 2011.

We’d like to express gratitude to our Community members for your comments and suggestions. All of you submitted many of the new names on the 2011 Top Blogslist and we thank you for infusing fresh talent into our Community. We also want to especially thank the LexisNexis Insurance Law Advisory Board for giving us their input.

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources.

These sites demonstrate the power of the blogsphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance.”