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Ohio Agent’s Use of LEAP System Results in Misrepresentation, License revocation

Ohio Agent’s Use of the LEAP System Results in Misrepresentation, License revocation

According to a June, 2016, press release from the Ohio Department of Insurance, the insurance license for producer Brian Willms of Dublin, OH, was revoked and he was ordered to pay a $3000 fine to cover administrative costs associated with the order.

The reason? In a nutshell, misrepresenting life insurance policies to consumers as investments, a Life Insurance 101 "NO-NO”. Anyone familiar with basic compliance elements of life insurance knows that life insurance is exactly that – life insurance. It has numerous valuable features and can be a great addition to a financial portfolio, assuming the primary driver of the sale is the death benefit. Promoting it as anything else – an investment, a retirement income plan, a “be-your-own-bank” – is risky behavior, and often leads to confused consumers when the policy or strategy doesn’t perform as they anticipated.

According to the Ohio order, the agent utilized a decades old strategy called the LEAP system, which stands for Lifetime Economic Acceleration Process. This sales process is generally designed to move most of a consumer’s assets into a whole life insurance policy, often suggesting that other investments in real estate, retirement accounts, 529 plans and other investments are not beneficial and will not “accelerate” the consumer’s earnings as quickly as the life insurance policy. As you can imagine, this was a problem for a number of his clients and was the basis for the order.

Of course, any strategy that takes a one-solution fits all approach is bound to raise some significant suitability concerns and the LEAP system is no different if it doesn’t carefully analyze each client’s individual situation. Incidentally, LEAP is generally not an industry accepted approach to selling life insurance and a number of carriers do not allow its use to sell their products.

But then again – how does an insurance carrier really know what selling systems their producers are using, especially if they utilize independent distribution? This is a common issue for many carriers, but one that can be managed. It’s important that carriers acknowledge this risk and take steps to demonstrate that they have a reasonable approach to managing it.

One fairly simple way for carriers to gauge how their products are being sold is to assess the advertising of their producers. Advertising is one of the most transparent means into a producer’s business, giving insight into how the producer is marketing insurance and annuity products. This information can help carriers identify potential advertising or sales practice red flags and open up conversations with producers about their sales techniques. It is especially important to become familiar with advertising that is non-carrier specific because these pieces are often not submitted to the carrier for pre-approval but are frequently used to solicit a product sale.

The need to supervise the independent agent’s advertising will become more critical in light of the DOL Fiduciary Rule, which requires greater supervision of the sales practices of producers. A review of producer advertising may quickly help carriers determine which producers appear to present lower risk and therefore which ones they are willing to continue to conduct business with. Taking steps now to ensure your producer’s advertising is in line with insurance regulations will help you get a head start on the added compliance requirements to come, easing the transition to the post-DOL world.

Click here to view the Ohio Department of Insurance press release.