The Insurance Marketplace Standards Association (IMSA) is one of the more important developments in the Life insurance industry during the past several decades. This article by Richard Weber sheds light on how IMSA affects Life producers.
Originally compared to the 'Good Housekeeping Seal of Approval,' compliance with IMSA’s Life Insurance Ethical Market Conduct Program represents a new standard of performance. 'How are your ratings?' and 'Are you IMSA certified?' could have equal weight in the eyes of an agent who’s evaluating possible carrier engagements. It might even become such an evaluation criterion for consumers and advisers.
Companies that obtain the IMSA certification will be able to display the IMSA logo in advertising and marketing materials.
WHAT’S IMSA ALL ABOUT?
The preamble to IMSA defines the association in these terms:
'The Life Insurance Ethical Market Conduct Program of the Insurance Marketplace Standards Association (IMSA) seeks to encourage and assist participating companies in designing and implementing sales and marketing procedures that benefit and protect the consumer. The assessment process is intended to encourage and assist insurers continually to review and modify their policies and procedures in order to improve their market conduct practices and those of the industry. By promoting collective performance improvement, the Program aims to strengthen consumer confidence in the life insurance business. The current Market Conduct Program applies to individually-sold life insurance and annuity products.'
IMSA has established six Principles of Ethical Market Conduct. A company that seeks membership (requiring recertification and renewal every three years) responds to a number of questions to determine that it has high levels of adherence to these Principles. Following this self-assessment, an Independent Assessor confirms the documentation to support the 162 'Yes' responses required for membership. Each Life insurance company subscribing to IMSA commits itself in all matters affecting the sale of individual Life and annuity products to these six principles:
IMSA’S SIX PRINCIPLES OF ETHICAL MARKET CONDUCT
1. To conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, it would apply to or demand for itself.
2. To provide competent and customer-focused sales and service.
3. To engage in active and fair competition.
4. To provide advertising and sales materials that are clear as to purpose and honest and fair as to content.
5. To provide for fair and expeditious handling of customer complaints and disputes.
6. To maintain a system of supervision and review that is reasonably designed to achieve compliance with these Principles of Ethical Market Conduct.
WHAT DOES THIS MEAN TO YOU?
Agents need to be aware of the process because the companies with whom they place business will usually tell them to observe new standards of sales practice and market conduct. What you do and how you do it is about to enter into new realm of scrutiny, so it’s important to understand what’s being asked of you. It’s also important to know if you’ll be able to make a living or be able to continue doing what you do and how you’ve been doing it.
KEY PRINCIPLES FOR AGENT ACTIVITIES
Principles 1, 4, and 6, which directly affect the agent at the point of sale, deserve some attention: The first Principles is 'To conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, it would apply to or demand for itself.' Does this Principle sound familiar? It’s virtually identical to the CLU Pledge, which in turn is patterned after the Golden Rule. The questions which insurance companies must answer include:
Question 1.1 Does the company have policies and procedures designed to reasonably assure determination of customers’ insurable needs or financial objectives in the marketing and sales of its individual Life and annuity products?
Question 1.2 Does the company encourage its distributors to use fact-finding tools for determining customers’ insurable needs or financial objectives in the marketing and sale of these products?
These questions are the minimum that agents should expect of our peers, our insurance companies, and ourselves. The questions include 'feel good' affirmations of ethical conduct and intention, as well as specific requirements that the company has put into place procedures and processes for agents to ascertain the customer’s needs.
Principle #4 also focuses on point-of-sale activities: 'To provide advertising and sales materials that are clear as to purpose and honest and fair as to content.' To assess this principle, companies need to answer Question 4.1:
Does the company have policies and procedures designed to provide reasonable assurance that during the sale and solicitation of individual Life and annuity products customers receive information consistent with making buying decisions about what is appropriate for them?
Question 4.1 procedures suggest a new standard of care: Determining the suitability of the customer for the product(s) being recommended and sold. For all agents, this raises an important question: By what objective means do we consistently commend a given type of product for a given set of circumstances? Few agents have such objective methods, and giving professional agents their due, there was a time when our knowledge and professionalism was all that was required to make a competent and appropriate product recommendation. In 1968, we didn’t face too many product selection/suitability challenges (We had two products to sell: Term at $3.25/$1000 for a 35-Male, and Whole Life at $18.00/$1000!).
On the other hand, 2003 offers many challenges not present 35 years ago. We have a feeding frenzy of litigation against agents and their companies; a financial press that appears anti-agent and anti-permanent insurance; a regulatory environment that’s imposing suitability standards — and the average broker has hundreds of individual product choices cast among the many carrier appointments with whom they need to remain competitive.
Principle #6 requires carriers to 'maintain a system of supervision and review that is reasonably designed to achieve compliance with these Principles of Ethical Market Conduct.' This principle seems to speak for itself. Without it, there can be no assurance that all the effort that went into establishing procedures will benefit anyone — except for the paper manufacturers.
ISSUES FOR AGENTS/BROKERS
One intriguing example of our need to become aware of IMSA is the potential conflict faced by any agent appointed by more than one company. Indeed, the typical Society member probably needs a dozen or more appointments in order to offer a complete and competitive inventory of policies for various client needs. If Carrier A has developed a set of rules, regulations, procedures, and processes that allow it to get IMSA certification, and Carrier B has a somewhat different set of rules and procedures, how is the agent to manage the conflict? Often we don’t know which company or which product we’re going to end up using in a given client situation. As a number of questions in the Principles suggest, there can be a 'Catch-22' working against the agent/broker! It would be impossible to comply prospectively and simultaneously with two different sets of rules. How will we manage the conflict when it’s compounded by adding a dozen brokerage relationships?
CONCLUSION
I’ve briefly reviewed what might become the most profound change in the Life insurance industry since the Armstrong investigations a century ago. Those investigations — responding to alleged widespread financial abuses in the Life insurance industry — brought about sweeping changes in policy non-forfeiture values, carrier solvency requirements, commission and expense limitations, and a host of other regulations.
With many parallels across that 100-year gap, the Insurance Marketplace Standards Association is attempting to resolve more recent concerns for market conduct abuses through an industry-sponsored, voluntary, and self-regulating process. Industry leaders recognize that state and federal regulators would be only too happy to create a 21st Century version of the Armstrong investigations to respond to alleged abuses. Those same leaders know that fixing the problems ourselves is infinitely preferable to having the type of regulatory response that was imposed on the Life insurance industry in Great Britain.
Regulations imposed there in 1995 were viewed as largely responsible for a 50% reduction in the amount of insurance sold in 1995 (compared to 1994) and a more than 50% decline in the number of agents in the past five years.
The Life insurance industry in the U.S. might experience a similar decline if we’re not able to deal with our own issues. We’re now encountering these challenges:
- Skyrocketing competition within the financial services industry
- Changing demographics, with 'boomers' less interested in permanent Life insurance (especially Whole Life)
- The incredible appeal of variable products — until the next big market correction
- Model illustration regulations (What is it about 14-page illustrations that makes them more understandable?)
- Market conduct audits
- Capital gains tax reductions challenging the historic advantage of 'tax deferred inside buildup'
Our challenge is nothing less than industry implosion or transformation. As insurance companies begin to certify their ethical conduct through IMSA — and as the public and press gain awareness and grant credibility to the process — we’ll all be better off for the extra effort IMSA is requiring of us to focus on appropriate market conduct. The Life agent’s survival will be linked to the survival and 'thrival' of those companies.