Life Insurance Company Service and Fairness to Policyholders

The quality of a company’s service is difficult to quantify, but nonetheless an important criterion in company selection. Look for evidence regarding the company’s turnaround time for requests for information, policy loans, initial underwriting and application processing, and processing of death claims as well as other administrative matters. The company may provide statistics on such matters if requested. Also, it is wise to inquire among life insurance professionals who are familiar with the service provided by various companies.

The level of services provided by agents varies greatly from company to company. Some companies spend considerably more than others on training and efforts to keep their agents informed about legal, tax, and planning issues that affect their ability to provide ongoing service to policyowners. In general, if a large proportion of the company’s agent force has professional designations—such as the CLU (Chartered Life Underwriter), ChFC (Chartered Financial Consultant), or CFP® (CERTIFIED FINANCIAL PLANNERTM)—or other credentials certifying their competence in a specialty area, it is evidence of strong support for and encouragement of education and training of their agency force.

In addition, since these professional designations generally take some years to earn, it suggests the company appeals to long-term and committed life insurance professionals. Presumably, these professionals prefer to work for companies that provide the highest standards of service to the field force and their clients.

Whether a company has a history of fairness to its policyowners is also difficult to quantify but of considerable importance when selecting a company. A key fairness issue is whether policyowners share equitably in the company’s favorable performance. Are distributions to participating or interest-sensitive policy owners equitable relative to the total distributable surplus? Similarly, are existing policyowners (or blocks of policies) treated equitably with respect to new policyowners (or new blocks of policies)? Do policyowners of one type or class of policies receive their equitable share of distributable surplus relative to other types or classes of policies? 

Each of these questions is difficult to answer but some evidence may be gained by inspecting company financial statements regarding the distribution of surplus. Further clues may be unearthed by comparing a company’s past dividend illustrations with the amounts of dividends actually paid.1Many companies have a history of paying higher dividends than they originally illustrated, quite often by design, so a careful analysis may require comparisons among a number of different classes or types of policies and with differing issue dates to uncover any systematic “unfairness” by class or age of the policy.

If actual dividend payments are frozen or below the amounts shown in the illustrations, it should arouse suspicions. However, under the current competitive and financially uncertain environment, we are likely to see far more policies than in the past that is not paying dividends or credit interest at the rate originally illustrated.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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