COMPLIANCECOMPLIANCE Compliance Solutions Session 3: February 27, 2006 Session Producer: Karen Smyth, Product Director Long Term Care Prudential.

COMPLIANCE

Compliance Solutions

Session 3: February 27, 2006

Session Producer:

Karen Smyth, Product Director

Long Term Care

Prudential

COMPLIANCE

Panelists

• Maryann Glotzer, LIMRA International

• Brian Atchinson, IMSA

• Elizabeth Lovaas, New York Life

What is LIMRA International?What is LIMRA International?

A member-owned organization, dedicated to meeting the information needs of companies involved in marketing insurance and investment products. Through the application of cooperative and custom research, we strive to deliver insights that help bring the complex world of financial services into focus.

We know your company, your products, your business, and most importantly, compliance issues.

Why a Customer Assurance Program (CAP)?

Why a Customer Assurance Program (CAP)?

Reaction to class action suits and market conduct concerns of the industry

If customers misunderstand the provisions of their products -- sales practices are misleading

The only way to know customers understand -- ask

Why CAP?Why CAP?

CAP is the industry standard for benchmarking customer satisfaction at time of sale.― Endorsed by IMSA― Over 100 companies using CAP for:

• Life • Annuities • Long Term Care

What is CAP?What is CAP?

Survey of recent buyers

Dear Valued Customer:

I appreciate your recent purchase and

would like to take this opportunity to assure

you of our commitment to serving the needs

of customers such as yourself. You can help

us do a better job of service by telling us

why and how you recently decided to

purchase a Real Life product.

Won't you please take a moment to complete

this brief questionnaire, place it in the

enclosed business reply envelope and drop

it in the mail — no stamp is required. We

have asked LIMRA, an independent

research organization, to conduct this

survey for us.

If you have any questions about your

purchase or if we can provide any other

assistance, please contact your agent or our

customer service department at (XXX) XXX-

XXXX.

Cordially,

[name]

[title]

1. Based on your recent experience, how helpful was:

Extremely Very Somewhat Not Very Not At All

a. The service provided by the producer? 1

2 3

4 5

b. Our product descriptions and sales materials? 1

2 3

4 5

2. What product(s) h

ave you recently purchased from our company? (Mark all that apply)

Life insurance

Annuities Investment products (sto

cks, bonds, mutual funds and the like)

Some other type of insurance

None

(If you did not buy life insurance, please skip to question 7.)

3. For what purpose or purposes did you buy life insurance from our company? (Mark all that apply)

To help cover burial and other final expenses

For business purposes (e.g., key person, split

To help provide for your family's needs after your death dollar, partnership, stock redemption, etc.)

As a way of saving money for retirement

For estate liquidity (e.g., to offset estate taxes,

As a way of saving money for your children's

to cover probate expenses, etc.)

educational expenses

As an investment

To help pay off the mortgage after your death

For tax-sheltered savings

As a charitable contribution

4. What sources of money are you using to pay the premium for the life insurance you recently purchased?

(Mark all that apply)

Current income

Money that has built up in another life

Savings

insurance policy I still have

Money from a canceled life insurance policy

Other

5. Have you received your policy?

1 Yes, my agent delivered it to me in person.

3 No, I have not yet received my policy.

2 Yes, my agent mailed it to me.

6. Did your agent analyze your life insurance holdings, your social security, and your other financial assets in order

to suggest a definite life insurance program to fit your needs?

1 Yes

2 No

7. Do you have any suggestions about how we could improve service to you or any additional comments?

YOUR LOGO

HERE

What is CAP?What is CAP?

Questionnaire

Cover letter

Analysis & Imaging

Drawing

► LIMRA prints questionnaires and envelopes

with the company’s logo and colors

► LIMRA mails questionnaires along with

postage paid return envelopes

► LIMRA pays all mail out and return postage

costs

► LIMRA sponsors a drawing to enhance

response rates

► LIMRA analyzes results and provides reports

0

12

3

4

56

7

All Regio

ns

Agenc

y 1

Agenc

y 2

Agenc

y 3

Agenc

y 4

Agenc

y 5

Agenc

y 6

Agenc

y 7

Agenc

y 8

Agenc

y 9

Report

Percent of Life Customers Unaware They Bought Life Insurance

QuestionnaireQuestionnaire

QuestionnaireQuestionnaire

Reports from CAPReports from CAP

Company summary with industry norms Reports by Distribution Channel Regional, marketing, and producer-level reports Identification of any units or producers who differ

significantly from overall company results Name, address, and policy numbers of every

policyholder who indicates a significant misunderstanding

Additional Information from CAP

Additional Information from CAP

Electronic images of returned surveys in client’s own handwriting

I just wanted to say I love my agent

Mike @ your office in Claremore,

OK. He’s the best!! Heather K.

Most Comments are Positive!Most Comments are Positive!

Benefits of Using CAPBenefits of Using CAP

Monitors sales practices without disrupting sales process― post-sale so does not diminish producer productivity

Prompt reinforcement with policyholders― reinforcing the reasons for buying immediately after sale can

improve persistency ― elicit complaints before they fester into grievances

Communicates expectations― survey content shows producers what company expects its

customers to understand about their purchase

Benefits of Using CAP (Continued)Benefits of Using CAP (Continued)

Independent administration― provides an arm’s length unbiased analysis and plaintiff

lawyers cannot contend company is auditing itself Industry benchmark

― provides standard against which to judge performance ― strength in numbers― CAP User’s Group and CAP Connection

Using CAPUsing CAP

CAP tells you:

Which customers are confused

What they’re confused about

Who or what confused them

Using CAPUsing CAP

Analyze the exceptions― Do you need to contact the client?― Do you need to contact producer?― Do you need to contact a supervisor?― Do you need to contact marketing?

Using CAPUsing CAP

Establish procedures Document all actionsDocument all actions Document responses to those actionsDocument responses to those actions Forward information to anyone who might be Forward information to anyone who might be

interestedinterested

Using CAPUsing CAP

Publish procedures Copy producers on communications with their

clients Copy supervisors on communications with their

producers

Using CAPUsing CAP

Track activity by regions, production units, and by producers

Communicate the results to the regions, production units and producers

Encourage interest

Using CAPUsing CAP

Defend producers from frivolous complaints Defend against insurance department actions Defend against law suits Publish your successes

Questions?Questions?

Compliance Solutions:IMSA Assessments

Brian K. AtchinsonFebruary 27, 2006

Anaheim, California

“The secret of life

is honesty and fair

dealing . . .

if you can fake that,

you've got it made.”

Groucho Marx

What Is IMSA?

• Independent, nonprofit

standards-setting organization.

• Promotes high ethical standards in the marketing, sales and service of individual life insurance, long-term care insurance and annuities.

Why IMSA?

• Organized in early 1990s; a response to crisis of consumer confidence in the insurance industry.

• Provides rigorous, measurable, national standards.

• Identifies problems early before they become widespread.

Principles of Ethical Market Conduct

1. To conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, it would apply to or demand for itself.

2. To provide competent and customer-focused sales and service.

3. To engage in active and fair competition.

4. To provide advertising and sales materials that are clear as to purpose and honest and fair as to content.

5. To provide for fair and expeditious handling of customer complaints and disputes.

6. To maintain a system of supervision and review that is reasonably designed to achieve compliance with these Principles of Ethical Market Conduct.

Principles of Ethical Market Conduct

IMSA Qualification

To qualify, a company:

• Develops and implements policies and procedures in support IMSA’s Principles.

• Conducts an extensive self-assessment.

• Undergoes an independent review conducted by an IMSA-qualified assessor.

• Documents compliance with the six key principles, a minimum of 144 separate criteria.

SuitabilityNeeds-based Selling

IMSA: Compliance Solution

Needs-based selling.

• Evaluate a customer’s insurable needs and financial objectives.

• Use of fact-finding tools.

• “Suitability” determined through needs-based selling.

IMSA: Compliance Solution

Producer supervision.

• Adequate screening and background checks.

• Adequate training and supervision.

• Data collection and ongoing monitoring and review.

IMSA: Compliance Solutions

Clear and fair advertising, marketing, and sales materials.

• Maintain consistent advertising review procedure.

• Materials are easy to understand. Proper disclosure.

• Compliance with laws and regulations on advertising, unfair trade practices, sales illustrations, etc.

IMSA: Compliance Solution

Fair and expeditious complaint handling.

• Written and verbal complaints.

• Track underlying problems to address systemic issues.

Ethics = Commitment to Continuous Improvement

2006 IMSA Standards Update

Value of IMSA

IMSA-qualified companies have:

• Fewer complaints.

• Lower lapse and surrender rates.

• Higher financial ratings.Georgia State University Study, 2005/2006

www.imsaETHICS.org

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IMSA in Practice

Beth Lovaas, AIRC, MBA

New York Life Insurance Company

February 27, 2006

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Agenda• IMSA topics• Membership• Company approach• Self-assessment process• Independent assessment process• Sample certification timeline• Examples of improvement• LIMRA CAP• Conclusion

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IMSA Topics: Suitability

• Efforts to determine product suitable for customer

• Evidence of suitability guidelines• Communicate to agents and

encourage use in sales process• Submission of suitability review

with application

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IMSA Topics: Distributor and Employee Training

• Company products and operations• Company policies and procedures

• Replacement, suitability, fair competition, advertising and sales materials, complaints, illustrations

• Compliance with laws and regulations• Marketing and sale of products• IMSA Principles of Ethical Market Conduct

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IMSA Topics: Licensing • Appropriately qualified• Licensed and appointed• Meet applicable continuing education

requirements• Assure that distributors do not place

business or receive commission if not properly licensed and appointed

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IMSA Topics: Advertising and Sales Materials

• Process for review, approval, and use of materials

• Communicate requirements to distributors• Make materials available to distributors• Maintain compliance with laws and

regulations related to advertising• Track and dispose obsolete materials

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IMSA Topics: Replacements

• Provide customers with information to make decisions, including state disclosures

• Communicate company’s policy and guidelines to distributors, including commissions

• Identify and process replacements• Detect undisclosed internal replacements• Monitor agent activity

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IMSA Topics: Laws and Regulations

• Process for tracking and implementing laws and regulations by effective date

• Communicate to employees and distributors

• Update policies and procedures to reflect changes in laws and regulations

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IMSA Topics: Complaints

• Communicate complaint handling procedures

• Inform customers of how to communicate complaints

• Handle complaints from state departments of insurance

• Monitor complaint trends

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IMSA Topics: Oversight and Monitoring

• Enhanced systems and procedures to supervise and monitor compliance with laws and regulations, IMSA, and company codes of conduct and take corrective action

• Monitor customer satisfaction with products and sales practices

• Monitor and analyze replacement activity and take appropriate action

• Enhanced training for distributors and employees on covered products, Principles and Code, and laws and regulations

• Use LIMRA Customer Assurance Program surveys

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Continuous Improvement

1. Policiesand Procedures

Continuous Improvement

2. Responsibilities

3. Communication

6. Act Upon

5. Monitor

4. Used

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Membership• NYL founding member• NYL certified since 1998 and LTC initially

certified in 2001• Membership renewed every three years• Continued compliance with Principles and

Code• Certification process is vigorous assessment

of company practices in light of Principles and Code

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Strategy

• Corporate Compliance Department– Overall recertification– Provide support and guidance

• Life, Annuity, and LTC Business Areas– Complete self-assessment document– Respond to independent assessor

requests and coordinate on-site visit

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Self-Assessment Process• Performed in-house by NYL team• Evaluate existing policies and procedures to

– Extent revised in last three years; and– Confirm data provided in prior assessment is

accurate

• Review best practices recommendations from prior assessment and document where and how incorporated into procedures

• Provide report to assessor

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Self-Assessment Tools

• Organizational chart

• Interview guide

• Responsibilities matrix

• Training matrix

• Supporting documentation

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Independent Assessment Process

• Qualified assessor

• Review self-assessment report

• Perform evaluation to determine if reasonable basis for NYL’s conclusions

• Test and sample data and information

• Submit report and recommendation

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Sample Certification Timeline• Self-Assessment: December 2003 – January 2004

• Update 2001 information (responsibilities matrix, interview guide, documentation)

• Corporate Compliance visit 12/10 – 12/11• For each topic, show that have P&Ps, someone is

responsible, how P&Ps are communicated, evidence of use of P&Ps, monitor and measure use, and actions to keep P&Ps current

• Identify and eliminate any reportable gaps

• Independent Assessment: February 2004• NYL provide self-assessment report to assessor• Review materials and develop interview questions• Provide NYL progress report including actions needed

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Sample Certification Timeline• Independent Assessment: Mid-March 2004

• Request sample files on New Business, Licensing, Replacements, Advertising and Sales/Illustrations, and Complaints

• Provide checklists of information seeking for each topic• Provide progress report on findings and actions needed

• Independent Assessment: April 2004• Conduct on-site visits for 3 - 4 days• Conduct interviews, walk-throughs, testing, and review of

sample files• Analyze findings and report recommendations for

improvement to management• Submit reports to IMSA

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Examples of Improvement• Educate management of good practices• Enhance employee knowledge

– Regulatory requirements– Complaint handling

• Improve regulatory tracking and implementation

• Improve new business process– Suitability– Replacement– Agent licensing, appointment and CE

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LIMRA LTC CAP Survey• LTC send monthly data file to LIMRA• LIMRA send survey to all customers that retain

policy after 30-day free look has expired• Surveys sent of about 500 – 700• Response rate about 28%• LTC receive policy flags, management report,

and agent activity report• Flagged policies of 20 - 60• LTC review and analyze policy flags and

forward to others

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LIMRA LTC CAP Survey• Corporate Compliance notify

Managing Partner of flagged policies• Managing Partner contact agent to

follow-up with client• Result of contact documented and

forwarded to Corporate Compliance• If no response after period,

information forwarded to Agency Standards for handling

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Questions