Veralytic Logo

Are Life Insurance Policy Reviews “Rigged”?

Thursday, March 19, 2015

Having to unexpectantly pay more for something or getting less for your money is not a good thing, but that is exactly what Michael Lewis claims is happening in a recent 60 Minute Interview, ““The United States stock market, the most iconic market in global capitalism, is rigged by a combination of the stock exchanges, the big Wall Street banks and high frequency traders (HFT),” Mr. Lewis said on CBS’s “60 Minutes.”

Is the Stock Market Rigged? 

While a rather sensational claim, the term “rigged” is defined[1] as “situations where unfair advantages are given to one side of a conflict.” So when Michael Lewis used the word "rigged," Eric Scott Hunsader, founder of Nanex, and veteran programmer, says in a Washington Post article “he’s right. It’s rigged, because all of these gains depend on [the unfair advantage of] receiving the information faster from an alternate source, which is specifically and clearly, with precedent, forbidden. Period.”

Since the stock market affects your retirement, the price and availability of goods and services and the financial health of companies that supply products and services, it affects everyone. When these firms use technology to circumvent the rules and gain an unfair advantage over firms and consumers that follow the rules.

Costs are lowest when markets are most efficient.  Markets are most efficient when people freely trade because they believe the market is trustworthy.  Trustworthiness is only possible when market activities are transparent and everybody’s following the same rules.

When rules are not enforced, Hundsader decries ‘Then all of society loses. We don’t want this wink-wink-nod-nod business. That drives smart people out. So you only have people involved who are willing to skirt the rules, so they’re likely to be the same kind of people who will break other rules, too.”

Trustworthiness is eroded and costs increase, both in terms of hard dollar costs and in lost opportunity, when too many businessmen are willing to skirt the rules.  Perhaps this explains why cost spreads have actually increased since the advent of HFT says Hundsader, and why too many individual investors missed the opportunity for market gains over the past few year. 

So what does HFT have to do with Life Insurance Policy Reviews? 

Life Insurance Policy Reviews have become increasingly important as more and more policies risk lapsing without value and without paying a claim even if/when all scheduled premiums were paid.  As such, the purpose of a Policy Review is either confirm that expected benefits will be paid, or identify changes needing to be made to ensure expected benefits will be paid. 

In fact, Life Insurance Policy Reviews have become so important that the Office of the Controller of the Currency (OCC) published a handbook requiring member banks to perform Policy Reviews and consider replacing an existing policy with a new policy.  In response, the number of insurance agents, brokers and consultants offering Policy Reviews has also increased in response to this demand. 

This begs the question: Are Life Insurance Policy Reviews “rigged”?  The answer is “It depends”.  

While some policy review providers follow the rules, and are providing a valuable service there are also some policy review providers are willing to skirt these rules.  Those who skirt the rules clearly gain an unfair advantage over both “honest” financial firms and policyowners alike.  These life insurance policy reviews are thus, by the above definition, “rigged”.  It’s rigged, because those reviews that are not compliant with published rules, guidance and regulations addressing life insurance policy reviews which is specifically and clearly, forbidden by the chief regulatory body of the financial services industry, the chief actuarial body of the life insurance industry, and the OCC.

Perhaps this explains why the cost difference between best-available rates and terms and worst- available rates and terms is as much as 80% - the widest cost spread in such a commonly owned financial product - and why too many CPAs, tax attorneys and trust officers seem resistant to recommend life insurance even given its clear tax preferences. 

So how can you tell if the Policy Review presented to you/your client is “rigged”?  Download the West Point Draft of the Best Practice Standards for Life Insurance Stewardship and use it as a checklist to discern between Policy Review providers who follow well-established wealth management best‑practices, versus those who skirt the rules. 

Veralytic is simply the fastest, easiest, and most comprehensive and cost-effective way to independently verify to clients and their advisors whether or not the pricing and performance of existing or proposed life insurance is in their best interest. Only Veralytic is accepted for independent client representation, endorsed by the New York Bankers Association (NYBA) and compliant with industry regulations and established case law.

Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your (client’s) policies based on the 5 factors of suitability. Click here and get up to 3 Veralytic research reports under our NO-Risk trial subscription.


re: Are Life Insurance Policy Reviews “Rigged”?

Monday, March 30, 2015 Ted Bernstein, Life Insurance Concepts

This raises an important question and concern.  We began doing life insurance reviews for trust companies in 1990 when carriers were failing and interest sensitive policies were often not sold well or understood well.  We were hired by some of the country's largest trust companies and law firms because we did the work on a fee basis and we were contractually prohibited from selling insurance or recommending agents.  Obtaining policy reviews and audits is necessary risk management for policy owners.  Life insurance consumers should seek the counsel of life insurance professionals for numerous reasons, including reviews of inforce coverage.  

Comments are closed on this post.