To the editor:
The expression "People in glass houses shouldn't throw stones" came to mind when I read William M. Isaac's Sept. 7 column, "Insurers Are Shooting Themselves in the Foot in Battle Against Banks." Mr. Isaac points to shortcomings in the life insurance agency system as a reason for banks to sell insurance. Yet he conveniently ignores serious problems in his own house, the banking industry, that argue against expanded powers.
There's every indication that banks would sell other lines of insurance in much the same way they currently market credit life insurance. That product is sold at the highest rates allowed by law and is often tied to a loan or mortgage without the borrower even aware that he need not purchase it from the bank. The Consumer Federation of America has called it "the nation's worst insurance rip-off."
Add to that the U.S. Public Interest Research Group's recent study showing that it now costs $219 a year to maintain an interest-bearing checking account, and you begin to wonder what the banks mean by offering insurance at competitive rates.
As for Mr. Isaac's case against agents, he relies heavily on industry statistics that have been taken out of context. His assertion that 40% of Americans have no life insurance doesn't take into account that in many households only the breadwinner owns a policy and that 78% of households have life insurance. Mr. Isaac also would lead us to believe that agent training and compensation are much more expensive than they really are. He cites the extremes, when the averages are much lower. In addition, lapse rates have improved over the last five years for all categories of life insurance products.
Mr. Isaac misinterprets a figure attributed to our organization, the $5 trillion difference between what Americans should have in life insurance coverage and what they actually own. This "shortfall" occurs not because families have no insurance, as Mr. Isaac states, but because they don't have enough. But to say this is the fault of insurance agents is no more logical than to say it is the banks' fault that Americans don't save enough. It wouldn't take much to show a huge gap between what the average American should have in savings and what he actually has in his bank account. Would that prove that banks aren't doing their job?
One thing Mr. Isaac doesn't say is that life insurance today costs roughly half what it did 30 years ago. I wish I could say the same for banking products. As bank fees continues to skyrocket and credit card rates remain stubbornly high, Mr. Isaac might take a hard look at his own house before throwing stones at others.
Allan G. Hancock
Association of Life Underwriters
Mr. Isaac replies:
In a letter of April 5, the Consumer Federation of America denounced an ad by the Independent Insurance Agents of America containing assertions similar to those of Mr. Hancock.
The CFA letter said, in part, "Ever since CFA exhaustively studied the issue a decade ago ... we have believed that bank entry into insurance sales ... has the potential to save consumers billions of dollars every year. We have, as IIAA well knows, characterized the entry of banks into insurance sales as a likely 'boon' to consumers."
Mr. Hancock's predecessor at the National Association of Life Underwriters is the source I quoted for the "$5 trillion shortfall of consumers with basic life insurance needs that don't have any life insurance at all."
Mr. Hancock asserts that lapse rates are coming down, but a July 18 report by the Consumer Federation of America states that "consumers waste more that $6 billion annually on cash-value life insurance premiums because of early terminations."