Why Would Regulators Do This?

The life insurance industry is not regulated by the federal government, it is regulated by each state. Most states have an Insurance Commissioner in charge of that regulation. Most Insurance Commissioners are appointed by each state's governor.

Where do governors go to find individuals knowledgeable about the insurance industry? Many appoint people who have worked in the insurance industry. While that can be an asset, it's also a big liability. Most Insurance Commissioner appointments are relatively short, only for a few years. Because of this, Insurance Commissioners know that they will eventually be looking for work elsewhere. Who would hire a former Insurance Commissioner? That's right, the same insurance companies that they are now regulating will provide the best opportunities for future employment. Therefore, no forward thinking Insurance Commissioner, considering his or her self-interest and future employment with the insurance industry, wants to do anything to upset that insurance industry.

This conflict of interest is further complicated by the National Association of Insurance Commissioners. The NAIC is an association whose members are the nation's individual Insurance Commissioners. Elected state senators and representatives are not part of the NAIC.

The NAIC is in the business, among other things, of crafting legislation that they want all states to adopt. The idea of these NAIC "model regulations" is to maintain uniformity among each individual state's insurance laws. The NAIC would argue that this helps smaller states with fewer resources, to take advantage of the efforts of larger states with greater resources. It also makes it easier for companies to do business from state to state if laws are all the same.

The problem is that the NAIC has become much too powerful. It is finding more and more ways to force states to adopt its model regulations whether those states want those regulations or not. The conflict here is one of political accountability.

The NAIC is an organization attempting to act in a nationwide law-making manner, without ANY accountability to federally elected politicians. Worse, the people that the NAIC is accountable to are largely appointed, not elected, state officials. Given that those appointed officials have such close ties to the insurance companies, it is easy to see why they have difficulty acting independently, in order to protect the people that they were appointed to protect: you the consumer.

The Proof Is In the Pudding.

The allegations I have just made are serious; very serious. However, what other conclusion can someone draw when one considers an NAIC model regulation like Triple-X?

There is nothing in the Triple-X regulation that benefits you, the consumer. Supporters of the regulation argue that there is, that you will be protected against life insurance company failures because the regulation will require life companies to maintain higher reserves.

But that's a fairy tale because most life insurance companies will respond to Triple-X by selling non-guaranteed level term policies, policies at seemingly low premiums. From a simple, logical standpoint, if premiums don't increase, how is it that the life insurance industry will end up being financially stronger?

But won't knowledgeable and informed consumers buy the guaranteed premium policies? No they won't. Those saying that you have that option are failing to tell you just how much more money those guarantees will cost you.

For example, a 50-year old male non-smoker, in very good health (preferred plus), can buy $250,000 of 20-year term for as little as $525. Before Triple-X, that was the price of a fully guaranteed policy available in most states, except New York. After Triple-X, the same premium will still be available, but not guaranteed for 20 years. If you want a 20-year guarantee, you will have to pay much hundreds of dollars more for it.

And after Triple-X, non-guaranteed policies
are going to get even cheaper.

Once life insurance companies no longer have to worry about guaranteeing prices, they will be less concerned with charging too little. After all, if they can raise your premiums later, why not price those premiums very low and be even more competitive? Therefore, the hundreds of dollars difference between pre-Triple-X and post-Triple-X legislation will certainly widen even further. Multiply those extra hundreds of dollars you will have to pay annually by the life of the guarantee term - 10 years, 20 years and more - and you can see why Triple-X works for the insurance company, but not for you.

So Who Benefits?

Who ends up with all the extra money a consumer would pay for a guaranteed Triple-X policy? The answer is clear - life insurance company gets that extra money. If you do what I think most people will do, you will see the guarantee as being far too expensive and you will end up buying the cheaper non-guaranteed policy. Even if you do that, the life insurance company still benefits because it no longer has to give you the guarantee it once did pre-Triple-X.

Either way you look at it, Triple-X is a pro-company, anti-consumer regulation.

How can state regulators, who are supposed to protect you, push for the implementation of such a bad law? The answer is that these regulators are operating not with your interest in mind, but with the interest of the life companies in mind.

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