Posted on 23 Apr 2009
Connecticut Insurance Commissioner Tom R. Sullivan, trying to stem the loss of public confidence in insurance companies, is warning industry CEOs that it's illegal to get consumers to switch companies by misleading them about the financial health of competitors.
The Insurance Department said it will scrutinize replacement activity for life insurance policies and annuities. The department will also look at sales promotions and agent compensation designs that are aimed at replacement and will hold companies responsible for the behavior of their agents.
"I urge you individually and collectively to take whatever positive steps you can to promote public confidence in the ability of the industry to weather the storm and to refrain from any activities that serve to undermine it," Commissioner Sullivan told CEOs in a bulletin this week.
Promoting your own company's financial strength is OK, Sullivan said, but it is probably illegal "for companies and their representatives to make unfair or misleading statements, implications or innuendoes about the financial condition or solvency of other companies."
Sullivan's action comes as many insurers are dealing with financial rating downgrades after investment losses and capital concerns, and fearful consumers are wondering whether they should cash out of policies and switch insurers.
Regulators typically worry that a "run on the bank" could ruin a company that would otherwise survive.
The department was unable Tuesday to offer examples of questionable replacement activity it has seen. It isn't certain which companies' policies are being targeted.
However, The Phoenix Cos., with lower ratings than competitors, has said it is reaching out to customers in hopes of minimizing the loss of its clientele.
Several Phoenix customers with sizable policies were advised recently by their agents to surrender them, but kept the policies after they were told the company is financially strong and its claims-paying ability is secure, said Michele U. Farley, the company's senior vice president of corporate communications.
Regulators and Phoenix cautioned consumers that replacing policies or annuities can result in bad tax consequences, surrender charges and the loss of certain annuity guarantees. Also, people whose health has declined may have trouble buying a new policy or getting favorable rates.