Insurance Product Regulation

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press release from the Ohio Department of Insurance, the insurance license for producer Brian Willms of Dublin, OH, was revoked and he was ordered to pay a $3000 fine to cover administrative costs associated with the order.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



Kentucky Legislator sees VA Living and Death Benefits as Property

In a move that goes contrary to regulatory trend, Rep. Robert R. Damron, of Kentucky’s banking and insurance committee, has sponsored a bill that would prohibit restrictions on owners selling their guaranteed living and death benefits in the secondary market. Darla Mercado reports in a recent [article] in Investment News that the bill cleared KY’s House Standing Committee on Banking and Insurance. Mr. Damron says “To me, these benefits are something people purchase then they buy an annuity. You’re paying for the living-benefits rider, and it belongs to you, so it’s a property issue.” While he reportedly stated to Ms. Mercado that the odds of passage this year seem slight, he was also quite clear that we would re-work and reintroduce it next year if necessary.

On a not-directly-related note, but one that was very interesting to me:

While referring to the move being one that bucks the trend among state insurance regulators, no specific state position was discussed in any depth. Instead, Ms. Mercado referred to the position of the Interstate Insurance Product Regulation Commission (the “commission”), and noted that among the 30 members of the commission that voted, only Indiana objected to a [new uniform standard] that permits insurers to terminate, at their discretion, guaranteed living and death benefits in the event of a change in ownership or assignment.

Despite the fact that product submissions can be made directly to the Kentucky Insurance Department, no reference at all was made to the Kentucky DOI’s position on this - just the commission. Similarly, opponents of the measure proposed a study of the uniform standards promulgated by the commission rather than looking to study the position of the Kentucky DOI. That is a very tangible demonstration of where we are in product regulation today.