Here’s my top 5 list of things that I believe regulators need to change in the life insurance insurance industry.
1) Remove the fraud exclusion from life insurance policies. Right now Canadian life insurance policies state that life insurance claims can be denied in the first two years of the policy based on failure to disclose. After two years they can only deny claims based on fraud. Fair enough? Well, that depends on your definition of fraud. You probably think it means willful and malicious deception. What if the insurance industry uses a different definition of fraud (Oh, and they do)? Counterpoint – American life insurance policies do not have this fraud exclusion. In fact, Canadian insurance associations have been asked/advised to take this up and declined to do so. It’s a non-issue in the industry other than with a couple of life insurance radicals such as myself.
2) Require regulatory oversight on all claim denials. Right now life companies can call ‘fraud’ or ‘Yeah! It’s claims-denial day’ whenever they wish, and simply deny the claim. Consumers are now on the defensive, they have to hire and pay lawyers to take the company to court in order to get the claim paid. (I’m staying technical here, but think about how your spouse would feel about this after your death.) We should have a requirement of regulatory pre-approval on all claims denials. If companies want to deny a claim, require that they prove it to regulators first. Put the companies on the defensive first. Companies won’t go for this unfortunately, and consumers have little voice to promote this level of protection at the regulatory level.
3) Require self insured disability plans to have the same reserve or reinsurance requirements as an insurer. In short, if your company is going to ‘save money on insurance’ by looking after their own plan, then hold them to the same protection requirements as life companies. This loophole was exposed when Nortel when bankrupt. Nortel had their own disability plan which effectively went bankrupt at the same time as the company did. Requiring reserve or reinsurance requirements protects consumers in the event of bankruptcy of the company.
4) Require disclosure of licensing of advisors. I’m licensed to sell life insurance, but I have access to products that could make me look like a mutual fund salesperson. It should be clear to consumers if they’re working with insurance products masquerading as investments as opposed to straight investments. I believe consumers should be aware that I am only licensed for life insurance products, and am not licensed to sell traditional mutual funds.
5) 1035 transfers. Canadians can transfer funds from one RRSP or TFSA to another, without taxation. And why not? Not so with life insurance. If you have investments inside a policy in Canada and want to move to another policy or company, you have to collapse your policy, pay taxes and start all over again. This creates an anti-competitive market where once a client has purchased an insurance policy with investments, they’re locked in unless they want to pay taxes. In the U.S., consumers can use a form called a ‘1035 transfer’ to move investments from one universal life policy to another. This fosters a competitive environment, to the benefit of consumers.