January 28, 2011

Dear Attorney General Holder:

I write to inform you about an age-old problem which President Obama and you can readily solve. “The life insurance market is characterized not only by an absence of reliable price information, but also by the presence of deceptive price information. In my opinion, Mr. Chairman, the deceptive sales practices found in the life insurance industry constitute a national scandal,” testified Professor Joseph Belth – widely regarded as one of our nation’s foremost authorities on the life insurance industry - on multiple occasions over three decades before Congress. A New York insurance commissioner has written, “The conduct of the life insurance industry with regard to its sales and marketing practices has been inexcusable.” Despite such statements - and an endless litany of others documenting the life insurance industry’s age-old problem of inadequate policy disclosure that annually costs Americans billions of dollars, the NAIC and its members have never solved this fundamental problem. There is evidence, in fact, that they have thwarted its solution. While I well understand the various responsibilities and current agendas of different government agencies, their time and resource constraints, you and your office could readily perform a great service to the American public by making sure this easily solvable problem actually gets solved this year. All you might really need to do is chaperone the NAIC. Please let me explain.

For years I have written articles for trade publications and academic journals on the disclosure problem and its solution, but such have been completely ineffective. Although a former A. M. Best editor introduces me, stating, “You could not deal with a more ethical, independent expert on the design and marketing of insurance products….[who] tackles complex life insurance issues that frequently prove prescient” my endeavors to encourage others to become the transformative player in the life insurance marketplace - much as Justice Brandeis’ 1907 creation of SBLI temporarily was during the 1920s and 30s when GE supported it as an early form of employee benefit - have never gotten to the starting blocks. While Jack Bogle has written, “Your idea makes perfect logical sense,” he is no longer in charge of Vanguard. In contrast, scores of current financial executives, recognizing that the provision of good policy disclosure is a public good, do not believe, as their inactions prove, in their firm’s ability to capitalize upon being this industry’s transformative player. In light of such, this is a problem that the government must solve. As you will note from the enclosures, I have recently written to the NAIC and the Society of Actuaries to again ask them to solve this problem. There is, however, no good reason to believe that my latest letters, by themselves, will be successful. That is why I seek your help.

Unlike health insurance reform which is extraordinarily complex and ripe with contentious issues, life insurance reform is fundamental easy. Belth has said, “The solution to the problem of deceptive practices in the life insurance industry lies in disclosure….” All that has ever been required is someone - who has the power - to exercise their will and implement good policy disclosure. While investigations could make for good theater, as no doubt life insurance executives with their testimony could in comparison make the duplicitous 1994 tobacco chieftains seem to have been boy scouts running honorable businesses, all that is now needed is for the executive branch of the federal government, you and your office, to hold the NAIC’s feet to the fire. While my letter to the NAIC President asked her to obtain a performance bond and obtain consent from her peers to compensation claw backs, such unprecedented, albeit logical, requests were as much for rhetorical as for serious purposes. My point, again, just to be clear, is that someone needs to hold the NAIC and its state members accountable, and you and your office, I believe, could do that. Consequently, I would very much appreciate your assigning the enclosed materials to an associate who truly understands financial products and markets, economics, and the law, so that my work and this letter’s idea can be thoroughly reviewed by someone in whom you have complete confidence. Much additional documentation of the pervasiveness of the fraud and misrepresentations in the life insurance, annuities, and long term care insurance marketplaces is on my web site. 

With your help on this matter, President Obama could readily achieve another most significant accomplishment, a reform with measurable and reportable results because consumers will immediately be able to obtain much better value and the industry will be forced to operate much more efficiently. This nearly 200 year old industry will have finally been forced to comply with the most basic fundamental prerequisite of fair economic competition: providing appropriate product disclosure. Without your help, however, American life insurance consumers could well continue to be sitting ducks for the dysfunctional life insurance industry. I very much appreciate your time and consideration. Please welcome my call to see how you would best like to proceed. 

Sincerely,

R. Brian Fechtel, CFA & Agent