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Stan Haithcock

Compliance With or Without Enforcement

On January 17, 2014, Stan Haithcock, aka “Stan The Annuity Man,” wrote a piece for LifeHealthPro titled “It’s time to tax all annuity agents.” In it, he advocates a $25 assessment/fee/tax on each annuity application to fund a not-for-profit designed to accomplish three (3) specific goals. He sets them out as:

  • Education: ongoing agent education and the creation of legitimate annuity certifications
  • Branding: enhancing the annuity brand while framing a consistent consumer message
  • Protection: running ‘factual mirror’ ads to combat the current misinformation and hype on the internet, TV, and radio

One of his rationales for this approach is to “factually point out how the annuity industry continues to ignore unsuitable sales and advertising practices, and seems to care less about protecting the brand.” I don’t totally agree with that. I think there is a wide range of “caring” about suitability, advertising practices and protecting the brand. I certainly see situations in which it appears that there is a lot of ignoring going on, but I see plenty of situations in which that is not the case. A significant amount of our business is due to some players, big and small, in the annuity industry caring about precisely these issues.

But the other part of his rationale is that “It’s a fact that nothing is enforced, and there are no repercussions for anything said or promoted to achieve the beloved annuity sale.” And that isn’t all; “If you disagree with this, then you are from another planet and probably are under the delusion you have six pack abs.” I don’t agree with Haithcock that “nothing” is enforced, but there is no doubt that much more could be done from an enforcement perspective.

What is more perplexing to me is how this not-for-profit will address the problems he cites. If agents base their behavior only on whether or not there will be an enforcement action against them, his solution will not work because it does not do anything to increase enforcement. To do that, the assessment/fee/tax would have to go to the DOIs to increase their enforcement units. That won’t happen and he doesn’t advocate that.

I also do not think that Haithcock presents a completely accurate picture of the problems related to suitability and advertising compliance. Most of the folks we talk with here want to do the right thing, but they either lack awareness of what “the right thing” is in a given situation, or they lack the wherewithal to implement policies and procedures to ensure that sales are consistently compliant. If my perception is accurate, then making additional resources available may be helpful as may be the certifications/designations that he proposes. But I don’t think it would be more than a marginal improvement because resources for individual producers will still be an issue.

There is another possible way that resources may come to be allocated differently, however. A recent consent order issued by the Kansas Insurance Department, again a leader in this area, held a life insurance company responsible for the advertising of an insurance marketing organization (IMO) in a number of ways. The order specifically includes not only website and consumer-facing advertising, but also material used for the recruitment of agents. My belief is that this life insurance company will join the growing number of carriers concerned and taking an active role in compliance at IMOs and agencies. In my opinion, this carrier involvement in distribution compliance is likely to be very successful in curbing the suitability and advertising issues raised by Haithcock, and also a host of other sales practices that have tarnished the reputation of the life industry and its products.

I would not oppose a not-for-profit of the type proposed, but it is my belief that approaches like the one taken by Kansas are more likely to achieve significant results. I hope carriers are paying attention and are thinking about ways they can avoid joining the one cited in the Kansas consent order. Looking at compliance in independent distribution is something that carriers have historically been hesitant to do, but the time to do so may be upon us.

“Self-Policing” Producers

The use of online advertising is as hot as ever and the insurance industry wants its piece of the marketing pie. And who could argue with that? With practically everyone and their mom (Hi Mom!) having access today to the World Wide Web, the Internet can be an easy, accessible, worldwide “billboard.” However, whether you use a figurative billboard or a literal one, advertising regulations still apply. As the prevalence of online advertisements increases, so will the watchful eye of regulators, especially if complaints start to increase.

This is exactly what Stan Haithcock prescribes in his recent article When an online annuity ad goes bad” (2013). Haithcock raises a number of interesting issues, such as the “one size fits all” problem of annuity advertising as well as the “need” for web promoters to mislead the public from the very beginning of the sales process. What stood out the most to me was his “call to arms” – not just to consumers or regulators – but also to other agents to begin “self-policing” the annuity industry. His suggestion? “Every time you see a bad pop-up ad or display ad, take a screen shot of it and send it to your state insurance department and the carriers whose product you think the “promoter” is pushing. Every time you see a video that is pushing the limits on facts, send a link to them as well. Demand that they clean it up. Demand that they do their job…” He doesn’t limit this to online ads – he goes on to say it’s time for ads, regardless of the medium, to be looked at under a “microscope.” That is a bold request and a risky one too.

Can you imagine what that could mean for individual producers, FMOs and carriers? Do you feel confident enough in your own advertising that if it gets sent to a regulator, you could defend what is being put out there? When it comes to sales, reputation is a big part of an agent’s livelihood. Imagine that your business was under the microscope of the state department of insurance. Even if no fine is given (and chances are, there will be a fine), that type of negative exposure can stick to a producer for a long time. We are often asked, “what’s the risk” of certain words and phrases that come up in ad review. This can be a difficult question to answer since regulations are broad and somewhat subjective. However, with others within the field looking for (and frustrated with) bad ads, there can be a much greater risk than what you might expect.

You have to remember, just like Facebook can be a treasure trove of embarrassing and damaging content for people going out and looking for a new job, the use of online advertising is easily accessible to anyone – consumers, regulators and your competitors. Before putting content out there, ask yourself if this passes the desk of your state regulator, are you prepared to defend it (and your business)?