Great moments in life insurance history


The New York insurance commissioner looks at the marketplace:

"As already intimated, it is believed to be a fact, now causing quite general complaint, that there are too many complicated schemes or plans of insuring, and conducting companies, as well as too many and too elaborate forms of contract or policy. Each new company announces some new feature in its business, which is to enure greatly to the advantage of the insured, and thus, with some seventy different companies, each urging their superiority over all others, he who seeks insurance, if he stops to hear all the arguments, and deliberately determine which is really the best company, is likely to die before he reaches a conclusion."

(from the Eleventh Annual Report of the Superintendent of the Insurance Department of the State of New York, April 1, 1870)


A consulting actuary denounces the marketing of life insurance as an investment to people who have no need for life insurance:

"It seems reasonable, upon careful examination, to load a life insurance premium with a sufficient provision for expenses to enable it to be sold and the premiums to be collected, as well as for expenses of management. Life insurance is needed by thousands who would never avail themselves of it, were it not for the agents who urge its sale. It is as justifiable to use 10 per cent, or 15 per cent, of the premiums, or even more if there are weekly collections, to defray the cost of finding patrons for life insurance, as to add to the real cost of coal the expense of selling and delivering it, whether by the ton or the basket. That is, because the benefit must be paid for. The price may be high, but the thing is worth it and cannot be furnished for less.

An investment stands upon a different footing. If handicapped in this manner, it ceases to be an investment at all, and so can be sold only by false representations of its real character. For that can hardly be called an investment which returns less than is paid or which, after years elapse, barely returns what has been paid. Stated in this bald fashion, such a proposal would not be attractive to anybody. It can be marketed, therefore, only by pretending that in some subtle way, not easily comprehended, the deductions from the principal are going to be made good out of the earnings and a round profit be realised on the entire payments."

(from Miles Menander Dawson, The Business of Life Insurance, 1905)


Two insurance professors discuss the failure of traditional marketing approaches to match products with needs:

"Perhaps the entire structure of life insurance marketing needs retooling, as it relies almost exclusively on a marketing force promoting an investment, yet basically untrained in matters of investment. In making an investment use of life insurance, the insurance oriented salesman is generally more conversant with the advantages than the disadvantages of his recommendations. What is needed is an insurance-investment counselor who has no special financial interest in any investment alternative and is also conversant with all major alternatives. Today, the typical insurance salesman not only does not fully appreciate investment alternatives, but he often has little understanding of the investment element of life insurance. And his limited knowledge is strongly warped by his interest in the commission structure of his product."

(from Juan B. Aponte and Herbert S. Denenberg, "A New Concept of the Economics of Life Value and the Human Life Value: A Rationale for Term Insurance as the Cornerstone of Insurance Marketing," Journal of Risk and Insurance, September 1968)


A New York insurance regulator discusses the problem of finding a good life insurance agent:

"There are far too many agents in the first place. In the second place, an awful lot of them are...Well, some of them are criminals really, but very, very few. Most of them are so ignorant and ill-qualified, and I think I could say most, but that still leaves room for thousands who are very qualified and very able and if the consumers could only buy their insurance from them, then we'd all be better off, I think, and that's the way that consumers look at it."

(statement at an October 1989 meeting of the Society of Actuaries)


Fidelity Mutual's CEO tells its agents why they shouldn't worry about the company's financial health:

"In short, while we certainly aren't perfect, we have a well-conceived plan in effect designed to have us emerge as one of the premier companies in the industry. We remain confident in, and committed to the successful execution of the plan. As always, your confidence and support remain crucial to the accomplishment of those goals."

(Letter dated July 17, 1991 from Warren W. Deakins to All Fidelity Mutual Associates. Fidelity Mutual was taken over by Pennsylvania insurance regulators 16 months later, and 100,000 policyholders lost immediate access to their money.)

A member of the Society of Actuaries Task Force for Research on Life Insurance Sales Illustrations explains why they didn't use focus groups to find out what consumers think about policy illustrations:

"I'll respond briefly to the suggestion that we use focus groups to get the consumer point of view. We did consider that early on in our work and rejected it for a couple of reasons. One was the time constraints we were under and the cost of doing focus groups. But probably the most important reason is that if you get 15 people in a room who are recent purchasers of life insurance and then spend an hour or two dissecting the sales process and the use of their illustrations in that sales process, you're likely to have 13 people coming out slightly or greatly disillusioned over what they just did. We found that our field force and our marketing department didn't like that idea at all."

(statement by a Northwestern Mutual actuary at an October 1991 meeting of the Society of Actuaries)


A consulting actuary offers some advice to life insurance companies:

"Companies need to become much more consumer oriented. This is going to allow consumers to understand the products more, which will make the sales easier, which allows us to pay agents less per sale. I think we need to try to improve the quality of information. If you ask your friends from outside the insurance industry what insurance products they have, ask them to explain why they have those products. See how many can give you anything more than vague answers. Then, read the material the insurance companies are giving these people. See how many paragraphs you have to read over three or four times to understand what the product is and how it works. What chance does your average consumer have of understanding these products?"

(statement by a Tillinghast actuary at a May 1997 meeting of the Society of Actuaries)

An insurance company executive and a consumer advocate give New York state legislators their views on a proposed law that would allow the creation of mutual holding companies:

"I would like to spend my time discussing the issue that all of the mutual insurers in New York State believe is paramount with respect to mutual holding companies. What's in it for our policyholders?

During the nearly two years that this legislation has been in the making, the primary role of a mutual insurer — stewardship of its policyholders' interests — has been at the heart of the principles that are embodied in this proposed bill.

The desire to continue to perform this stewardship role for our policyholders is indeed the main point behind the proposed mutual holding company legislation."

Howard Atkins Executive VP and CFO New York Life

"I guarantee you, Mr. Chairman, if this bill prohibited any stock ownership and any stock options by any of the management over the next 20 years following the MHC conversion, we wouldn't be here today."

Ralph Nader Center for Study of Responsive Law

(statements given to the New York State Assembly Standing Committee on Insurance, Public Hearing, Mutual Holding Company Legislation for Life Insurance, October 8, 1997)

A former agency manager who now runs an Internet-based publishing firm looks at the future impact of the Internet on life insurance marketing:

"There's not one product on that list that Quotesmith puts up there that's been designed for sale through the Internet. Every product there has the same commission structure as is being sold by career agents or brokerage agents anywhere in the United States, and for me, that's kind of a ringer in the deal here...

I'm not an actuary, but I certainly can understand the difference between 150% load of first-year premium versus 35% load. And with the incredible power of distributing information that's available on the Internet, it's not going to take too long before a whole lot of consumers are going to understand that I can buy a product that has 35 cents on the dollar versus one that has $1.50.

I'm an agent, I've been in the business for 26 years, but I can assure you that you cannot sell a relationship sale for that big a gap. So it is going to be very interesting as more and more products are developed that do have lower loads, it's going to put pressure on the entire agency system. With the pressure of the information being distributed and disseminated through the Internet where people are finding out the true differences that can exist on those products, it's going to put pressure on the agency system to lower and close that gap some. I don't relish the thought of that happening, but I really think it will."

(statement by the president of Financial Services Online at an October 1997 meeting of the Society of Actuaries)

A consulting actuary explains why the cost of selling cash value life insurance needs to be reduced:

"For a typical [universal life] product, a dollar premium received by an insurance company would include approximately 27 cents for counseling and service. Sixty-six cents would be for savings and protection, and seven cents would go to profit.

If you assume what customers want are prices associated with buying competitive term products and good annuity or mutual fund products, then we estimate that in order to generate a significant market interest in permanent life insurance, current prices for competitive products must decrease 12% to 15% in the market. The improvement must come from counseling and service.

Why is that you ask. Well, the market is currently smart and educated, and we cannot trick them into lower benefits. We cannot provide lower benefits for the same amount of money, especially in an era of full disclosure. Rates of return for shareholders of insurance companies are barely at acceptable rates of return. There is no room to take profit from a shareholder. The balance must come out of counseling and service."

(statement by a Tillinghast actuary at an October 1997 meeting of the Society of Actuaries)


A consulting actuary tells a story about commission disclosure, sort of:

"I was launching a product for a company and the first question that was asked [by the bank's insurance representatives] was, 'What commission are you paying to the bank?' That's a question that is not for a company to answer. That's really for the bank program manager to answer. The representatives were just hot that they couldn't get an answer to that from their own manager or the company because they just believed that there was so much money that was staying out of their pocket."

(Statement by a Milliman & Robertson actuary at a June 1998 meeting of the Society of Actuaries. Agents' lobbyists spring into action whenever someone proposes the mandatory disclosure of agents' commissions, but it's a different story when agents want to know what someone else is making.)


Two tax advisers discuss split-dollar life insurance:

"Most split-dollar arrangements are sold by life insurance salespeople who overwhelm their prospects with the magic of tax-free inside policy compound interest build-ups. As compared to not doing anything, the results of almost any life insurance program are truly wondrous, especially over a 20-year horizon. What the taxpayer needs, however, is to be able to look at other alternatives as well.

In fact, one of our concerns is that the increasing practice of tax advisers selling life insurance and other investments along with providing tax advice deprives the taxpayer of someone who will offer an independent analysis of proposals such as split-dollar insurance. The tax adviser who is going to receive a commission on the transaction may believe that he or she is fully objective in analyzing the client's needs and in presenting the pros and cons of different alternatives. However, we are concerned that there is going to be an unconscious bias in favor of the transactions that produce commissions. We have observed that some tax advisers have, in the past, been reluctant for the same reason to vigorously critique proposals of life insurance people who referred substantial amounts of business to them. The taxpayer is thus presented with advisers who unanimously endorse both the economic and tax analysis reflected in the life insurance company projections."

Burgess J.W. Raby and William L. Raby, "What Gets Split With Split-Dollar Life Insurance?", Insurance Tax Review, April 1999


The CEO of a major life insurance company explains why people are better off if they don't know how much of their money goes into the life insurance agent's pocket:

"Reporter: What would be so bad about disclosing commissions in life sales?

CEO: The life sale is a very difficult sale. People have to talk about their mortality, about how much money they really need. It's very complicated. If right in the middle of this discussion, you throw in: 'And by the way, there's a 55% commission,'...You won't get the sale. You've now created enough of a hurdle to kill that form of distribution, and that's the only form that's proven successful in getting life insurance really out. Plus, you're going to create the potential for rebating, which is against the law in most states. There would be pressure for rebates. And once you do that, then you start affecting the income of these agents. Most of them don't even make it. The industry is lucky to keep 20% after four years. If all of a sudden rebating takes place, and their effective commission is cut back because they're trying to compete on commissions, you get rid of the career agency system...and many fewer people would have life insurance."

Sy Sternberg, CEO of New York Life Insurance Co., quoted in Best's Review, February 2005


A major life insurance company contrapositively declares that people who give insurance or investment advice are fiduciaries.

"Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products."

Pacific Life inforce illustration for a universal life policy, prepared on February 28, 2020


"Well, lapse-supported pricing seemed like a good idea at the time. Our agents loved it. Consumers loved it. How could we have known that it would turn out the way it did?"

Statement by an insurance company executive to a Congressional committee investigating sales practices in the life insurance industry