One out of five credit unions in the country is actively involved in promoting sales of cancer insurance, often in exchange for fees, according to the National Credit Union Administration, which has begun an investigation.
Questioning the properity of such arrangements, Rep. Frank Annunzio (D.-Ill.) has announced he will hold hearings early next month. "I am not convinced that credit unions, (which) have established a good reputation for helping the little guy, should be in the business of endorsing products or services," he said. "And there is no way that they should ever be connected with a product of such questionable reputation as cancer insurance."
This type of coverage recently has come under attack by consumer, government and medical organizations for preying on people's fears of the dread disease and for paying out only a small portion of the premium dollars they collect in benefits.
A General Accounting Office study of cancer insurance policies found that of five companies studied, Union Fidelity returned a low of 19 cents out of every premium dollar to policyholders, while Long Star returned a high of 55 cents in 1976.
The Argus Guide, published by National Underwriters, reported that of the top companies selling cancer insurance in 1978, American Family Life Returned 49 cents, Loyal American 63, and Life Investors 58. The industry average for all health coverage is about 85 cents on a dollar.
The Argus figures refer to each company's record for all health insurance claims; no separate breakdown exists for just cancer claims. Yet a study done by the Massachusetts Insurance Commission for cancer claims submitted in that state between January 1977 and January 1978 revealed that the three most popular American Family cancer plans, accounting for more than 70 percent of the cancer insurance sold in that state during the period, returned 33.2 cents of each dollar. Massachusetts has now required companies to include other diseases in these policies; New York, New Jersey, New Hampshire and Connecticut have banned cancer insurance entirely.
Consumer advocate Ralph Nader called cancer policies "one of the biggest frauds in the insurance industry." And the Federal Trade Commission likened dread disease insurance to "buying a lottery ticket." The American Cancer Society officially opposes it. Fifteen million Americans nevertheless have bought policies.
Robert Dugger, NCUA's director of the office of policy analysis, which is conducting the inquiry, said 4,000 credit unions are involved. It is common practice for them to send members insurance solicitations containing endorsements from credit union leagues along with their regular financial statements. If the members decide to purchase policies, their credit unions will at their request deduct premiums from paychecks and send them to the insurance company.
In exchange, the insurer customarily rebates 5 percent of the premiums collected to the non-profit credit union as expenses or to a profit-making service corporation of the credit union or to the profit-making, a trade association for credit unions. Individual annual premiums on cancer policies vary considerably depending on coverage, with some as low as $28 and others $100 or more.
Credit unions' willingness to promote cancer insurance for fees may be connected to the fact that they are now experiencing economic hard times. Net deposits this year are up only 4 percent, and a 12 percent usury ceiling has restricted loan activity.
Annunzio's subcommittee on consumer affairs found that the kentucky state credit union service corporation received between 12 and 18 percent of its total 1978 budget from cancer insurance sales and endorsements. In Maine the league and its affiliates earned $16,000 in payments; in Florida, the league's service corporation earned nearly $29,000 in five years.
In rhode Island a credit union rents space to a cancer insurance company; in another state, insurance salesmen are league personnel. Insurance companies have wined and dined credit union league officials at resorts to get their endorsements.
Richard Ensweiler, president of the Illinois Credit Union League and an official of the Mid States Corporate Federal Credit Union, defended the practice. He said cancer insurance was just one of a number of products, such as auto insurance, data processing or microfilms, that credit union service corporations offer to members. In Illinois, the service corporation, which gets 2.5 percent of premiums, earned $8,000 last year.
John Tighe, president of the service corporation for the D.C. Credit Union League, said about 14 out of 133 credit unions here participate. The league receives the entire fee, which amounted to $3,000 over five years.Tighe said that while (the propriety of promoting cancer insurance) "is obviously of concern of everyone in the credit union movement," he personally thinks Loyal American, a company the league endorses, is a reputable organization. He reported no complaints.
Yet a complaint from a member of the Greenbelt Federal Credit Union, along with the publicity over cancer insurance, triggered NCUA's investigation. NCUA's chairman, Lawrence Connell, said the agency has not yet made a clear finding as to whether there is any abuse involved.
Credit unions are only permitted to recoup their expenses, but Connell is not sure whether NCUA legally can prevent credit unions from doing business with service corporations and leagues.