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In recent years, a barrage of negative publicity stemming from market conduct improprieties has kept the life insurance industry under a cloud of doubt and suspicion. But the industry, to its credit, has taken positive action to regain consumer confidence by developing a bold new program through which companies can demonstrate their commitment to ethical, professional sales practices.
The market conduct debacle started several years ago with charges of unfair treatment of policyholders by insurers particularly in the sale and marketing of life insurance policies and annuities by insurance agents in the individual market. Since then, many insurers - including some of the largest life companies in the U.S. - have been hit with milliondollar fines and settlements as a result of lawsuits alleging abusive or misleading sales practices.
In many cases, these lawsuits reflect the disparity between consumers' expectations - formed at the point of sale and based on written and oral representations made by the insurer or its agent and what the policy subsequently delivered. Often, policies were sold using computerized policy illustrations that touted high potential cash accumulations or "vanishing premiums," based on the assumption that the high interest rates prevalent at the time of the sale would continue. Improper replacements and other alleged deceptive practices were other typical complaints cited in class action suits that flooded the court system and battered the industry's already shaky public image, causing a steep decline in the sale of new life policies.
Regaining Consumer Confidence
To reassure insurance buyers and set the industry on a new course, the American Council of Life Insurance developed the Insurance Marketplace Standards Association (ISA), which administers the voluntary compliance program that was launched early this year. To become members of IMSA, companies must perform a detailed self-assessment, using an IMSA-approved questionnaire, to demonstrate that they are in compliance with the following Principles of Ethical Market Conduct:
To conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, [a company] would apply to or demand for itself.
To provide competent and customer-focused sales and service.
To engage in active and fair competition.
To provide advertising and sales materials that are clear as to purpose and honest...