Life insurance buyers ae not given enough information "to make intelligent purchasing decisions" either by regulators or the insurance industry, according to a House subcommittee report made public yesterday.
"Americans spend well over $20 billion a year on industrial life insurance policies," the report said, but "significant consumer loss occurs because many consumers apparently do not purchase life insurance products on the basis of stability, quality and cost."
The report, called "Life Insurance Marketing and Cost Disclosure," was prepared by the House subcommittee on oversight and investigations.
As would be expected, representatives of the life insurance industry reacted to the critical report in a similar fashion.
Expressing "disagreement for the most part" with the report, the National Association of Life Underwriters said it "dismisses the acumen of insurance buyers, minimizes the professional expertise and commitment of the vast majority of career life insurance salespersons and underestimates the demonstrated effectiveness... of state regularion."
Another trade group, the American Council of Life Insurance, called the report "thoughtful and thorough," but said it was marred by "sweeping generalizations."
The report found inadequate a model for disclosure of life insurance costs published in 1976 by the National Association of Insurance Commissioners.
"The NAIC adopts the position of nondisclosure that has been advanced by insurers for years to avoid revealing the information that would enable consumers to make a meaningful decision."
By law, life insurance companies are regulated by state agencies, and the industry has fought vigorously against federal intervention.
While the report is critical of the state regulators who make up the NAIC, subcommittee chairman John E. Moss (D-Calif.) said in a cover letter: "We do not think that direct federal intervention is necessary at this time."
But the Moss report does endorse the conclusions of a 1976 investigation by the Federal Trade Commission of life insurance cost disclosures. The report added, however, that the FTC was "too heavyhanded" in its criticism of the NAIC model disclosures. The FTC had called the NAIC cost disclosure systems "incomprehensivle to moslt consumers."
The ranking Republican on the subcommittee, Rep. James M. Collins of Texas, "strenuously" objected to the Moss report. Collins, in his minority dissent, said: "I would say that the matter of regulating the life insurance industry is best left to the several states, and the FTC should stay out completely."
Among its major recommendations, the Moss report said that the consumer should be given a clear explanation of the differences between socalled whole and term life insurance policies.
Term insurance is pure protection, much like auto insurance, that is renewed yearly and provides death beneefits, the report says. Term insurance premiums increase with the age of the insured.
Whole life, by contrast, remains in effect for the insured's entire lifetime at a fixed premium and has a cash value.
The Moss report calls for the NAIC to explain the differences between these two types of coverage "by establishing a mandatory information disclosure system."
"Specifically," the report said," the system should consist of an individualized policy summary and a standard buyer's guide, both of which should be presented to prospective life insurance purchasers before they make their product selection."