The consumer groups have asked the D.C. superintendent of insurance to investigate abuses in door to door sales of life insurance and collection of premiums, less in benefits than ordinary life insurance, typically are sold to the poor.
Consumer Union, in conjunction with Legal Counsel for the Elderly and Neighborhood Legal Services Program asked Acting Superintendent James R. Montgomery III to determine whether sales agents are "misrepresenting policy values, deliberately allowing insurance to lapse in order to reinsure customers at additional profit, and overselling small and expensive policies."
This form of insurance is commonly called "industrial," a throwback to 19th Century England where agents collected weekly sums from workers as they left the factories. It is also known as debit insurance. Today the industry prefers the term "home service" insurance. It defends the product on the grounds that many poor persons otherwise will be left uninsured.
The total amount of industrial insurance in force at the end of 1978 with $38.1 billion, a drop in the bucket compared with the $1.425 trillion of ordinary insurance in force. Industrial sales in 1978 amounted to $6.3 billion, $235 million less than the previous year. Yet there are still some 70 million industrial life policies in force compared with 142 million ordinary life policies.
Sales and policies in force are highest in the Southeast, and in Texas, Pennsylvania, Ohio and Illinois. In the District, which had a population of 700,000 in 1978, there were 493,000 policies in force with a value of $205 million. By comparison, there were 437,00 ordinary life policies with a value of $4.3 million.
A Federal Trade Commission staff study last year called attention to alleged abuses in the industry.Because industrial life policies are written on the basis of outmoded mortality tables and the expenses of sales and collection associated with them are very high, the death benefits are considerably lower than those of ordinary life insurance.
A Senate subcommittee headed by Howard Metzenbaum (D-Ohio) calculated that the beneficiary of a 40-year-old male paying $300 a year in ordinary life premiums, would collected between $11,000 and $12,000 in death benefits after 20 years. The same person would get between $4,200 and $6,400 from an industrical life policy.
At a hearing last March, former agents related how they learned to shortchange and overcharge clients by erasing or omitting payments in debit books where they make weekly payments, exaggerating benefits by telling clients, for example, that the policies would help assure their children's education when the policies were good only for burial expenses.
Since then Congress effectively has stymied any interference by the FTC in the insurance industry. Nor does Congress seem inclined to push ahead with attempts to subject the industry to federal control. The National Association of Insurance Commissioners, a trade group, agreed to appoint a task force on the problem but it never has been constituted.
So the action is now at state level. Stiff action by New York in limiting the expenses a company can incur in selling insurance has virtually eliminated this type of policy there.
Montgomery, who has been with the D.C. Insurance Department for 20 years, said no great number of complaints has been received, and none are about deceptive practices. He added he has felt for some time there should be no legal distinction between ordinary and industrial life. Last year he recommended that the District government change the code to eliminate its separate mortality table and the $1000 maximum face value on policies.
The net effect would be to lower premiums somewhat and to permit consumers to buy a single industrial policy for more than $1,000 if they wish. Door-to-door weekly or monthly sales and collections still would be allowed.