It's time to change my tack. Today I'm going to argue that what the insurance industry needs is not more honest people but an objective evaluation service to keep more people honest. It took me a while to get here. And I arrived because readers squawked at all my earlier arguments.

When I write a column suggesting that the insurance industry needs a better distribution system, I get a pile of letters (e-mails) suggesting that what I don't know about insurance would fill all the oceans of the world. Or my editor gets letters suggesting that he might throw me in one of those oceans and hire a new and improved insurance writer.

When I write that many fee-only planners simply refuse to get involved in life insurance because they consider commissions too slimy, I get letters from advisors telling me that their colleagues who are afraid of insurance are either ignorant or cowardly or both and I shouldn't let them off the hook for that.

Recently I heard from Edward Dee Hinds, a CLU and CFP in Paso Robles, Calif., who wrote to say that he would be happy one day to see life insurance distributed by fee-only planners, something I've been arguing for a long time. But until then, he makes a couple of practical interim suggestions: leveling out the cost of commissions rather than paying them up front in the first policy year. And requiring those advisors who don't want to learn about insurance to call themselves "investment advisors" rather than "financial advisors." By refusing to learn about insurance, these planners show "a lack of true concern for the client and for the advisor's fiduciary responsibilities," he says.

When I write a column criticizing the cost of insurance delivery, an agent writes this to me: "Have you ever tried to sell an insurance policy? It's not easy." True. But the commission paid should not be compensation for stuffing a bad policy down someone's throat. It should be for finding the best policy available for that client. I don't think we should give up on understanding life insurance, and I don't think we should give clients' money to the agents who insist they deserve it because selling insurance is a nearly impossible job and should be well paid.

OK. So now that everyone agrees with me-more or less-I'm going to argue that what we need is an objective rating system that allows even someone who doesn't know how to tear apart a policy to compare life insurance. And that also allows an advisor to fulfill his fiduciary responsibility to clients.

Let's face it. The insurance industry is secretive. Insurers don't like people to know how they hide their fees by, for example, making it possible to raise mortality expenses without telling the policyholder. This fall I had lunch with an agent who is being forced out of his company, one of the biggest insurers in the country, because the insurer doesn't like the fact that he talks to reporters and tells them "the truth" about company products. Of course we all know wonderful people who sell insurance. But we don't know many people who evaluate policies in a way the common man can understand.
I'm not here to give a sales pitch for Barry Flagg and his company, The Insurance Advisor, which is equipped to evaluate and compare policies from different companies and demonstrate which is best for a particular person. Remember, what I don't know about insurance would fill all the oceans of the world. I can't evaluate The Insurance Advisor. I can't say that it fulfills the fiduciary duties of an advisor.

Still, what I've heard about it intrigues me. Flagg claims that The Insurance Advisor is to insurance products what Morningstar is to mutual funds. Unlike other insurance services that simply provide safety ratings for companies, TIA compares two-or more-policies (either load or no-load), shows the cost of various elements of each policy and publishes ratings and research on the product.

Flagg built the system himself out of what he says was his frustration with the lack of objective ratings for insurance products. "No one would sell a mutual fund based on a 30-year projection," he says. "The insurance vehicle is no different from any other instrument you use."

The premium can be broken down into investment and expenses so that the client can see which policy is better for him and why. A subscription to The Insurance Advisor allows a user regular access to the system for $99.95 per month. A research report costs a subscriber $125. A nonsubscriber can get an individual research report for $500. Flagg got a patent on his product in 2002. The only revenues TIA collects are those paid by subscribers to the service. The research report includes a star rating like Morningstar's. These stars rate not the overall policy but rather how good a match it is for a person of a particular age and gender and health condition.

First « 1 2 3 » Next