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New Kansas Bulletin, Colorado Amended Rule Address Life Insurance Advertising

    Two states have issued guidance about life insurance advertising. Kansas is concerned about third-party advertising, while Colorado has changed rules for disclosures and other issues.
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    Kansas’ changes come in Bulletin 2014-1, which stresses that life and health insurers remain responsible for advertising produced by outside parties – including third-party intermediaries like independent marketing organizations and field marketing organizations.
    “IMOs and FMOs are playing an increasingly important role in the marketing and distribution of life insurance and annuity products, as well as in the recruitment, training and education of producers,” the bulletin states. But it also points out that many of their advertisements and marketing material violate state rules in KAR 40-9-118, which are based on an NAIC life insurance and annuities advertising model regulation.
    With the NAIC model as a basis, this issue may actually go beyond Kansas’ borders and apply elsewhere.
    Among the violations Kansas uncovered:
    • failing to identify the insurer when promoting a specific product or product feature;
    • using misleading, deceptive or incomplete information intended for the general public in what appear to be bait-and-switch sales tactics;
    • making exaggerated and unsubstantiated claims about a product’s benefits; and
    • recruiting, training and educating producers using misleading, deceptive and/or incomplete material which is designed to be used for advertising to the general public.
    Understandably, the Insurance Department expects insurers “to treat this as a serious matter” and to take appropriate steps to ensure compliance. It suggests that insurance companies:
    • regularly communicate advertising compliance requirements to IMOs and FMOs; and
    • actively monitor outside marketing and advertising activities – including agent recruitment and training.
    This isn’t a new issue for Kansas. The most current bulletin refers to 2012 guidance – Bulletin 2012-1 – which, itself, reissued a 1991 bulletin (a copy of which is included in 2012-1).
    The 23-year-old bulletin pointed to such violations as:
    • not mentioning the name of the insurance company in the advertising;
    • not telling consumers that an agent will call for the purpose of selling insurance’ and
    • implying in advertising that the organization doing the advertising is either a resource center for seniors, or a government or nonprofit agency.
    As Kansas said in 1991,
    Every insurer shall establish and, at all times, maintain a system of control over the content, form and method of dissemination of all advertisements of its policies. All such advertisements, regardless of by whom written, created, designed or provided, shall be the responsibility of the insurer....”
    “Unfair, deceptive or otherwise improper sales practices,” the 1991 guidance summed up, “will simply not be tolerated, and this includes misleading advertising for which an insurer attempts to disclaim responsibility.” [emphasis added]
    The 2012 bulletin, meanwhile, referred to “a growing problem” with advertising by third-party marketing entities – and an erroneous assumption by advertisers and producers that third-party advertising is protected by a “regulatory buffer” that supposedly existed between the Insurance Department and insurers and their agents.
    No such buffer exists, then or now, of course.
    Insurance companies and their producers have always been responsible for the content of their advertising, as they are today.
    Meanwhile, Colorado Amended Rule 4-1-2, addressing advertising for life insurance and annuities, goes into effect July 1. A redline version showing the changes is here.
    Among the changes are rewritten disclosure rules that now require:
    • an advertisement showing projected values to clearly state that the interest rate is not guaranteed if the policy does not contain a provision for a guaranteed interest rate; and
    • an advertisement showing projected values to clearly state how the projected values are achieved if a guaranteed interest rate is contained in the advertisement.
    The changes also remove references to age in a section directing an advertisement not use the words inexpensive, low-cost or other phrases or words of similar meaning when the policies being marketed are guaranteed issue. That rule had previously applied only to persons 50 and older, but now applies to everyone.
    Colorado is also making it clear that producers can’t use misleading titles that suggest they have special expertise related to seniors, or imply that they are generally engaged in an advisory business in which compensation is unrelated to sales, unless that actually is the case. “Using terms such as financial planner, investment adviser, financial consultant or financial counseling for those activities remains on the books,” the revised rules state.
    As to rates of return, Colorado now says advertisements cannot contain a guaranteed interest rate if it is only available in the form of an income rider to their policy.
    Finally, advertising that lists rates or features that are a composite of several different policies or contracts of different insurers is also covered. In those cases:
    • the ad must disclose any composites;
    • the ad has to say that not all policies or contracts on which the composite is based may be available in all states; and
    • the ad has to identify each insurer and provide a rating of the lowest-rated insurer and reference the rating agency.
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