Tying insurance agent sales to health benefits is an under-the-radar conflict

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The next time someone tries to sell you an insurance policy or annuity, ask if his or her own health insurance depends on it.

It is common knowledge that insurance agents and other financial advisors are rewarded with cash commissions or bonuses when they sell their company’s products. In addition, agents of several mutual life insurance companies — owned by their policyholders, not shareholders — must generate a minimum revenue to qualify for subsidized health insurance and other medical benefits.

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People who sell financial products should be expected to consider the relationship between sales and the cost of their benefits when making recommendations, consumer advocates say.

“Agreements like these are at their core, conflicts that are bad for consumers,” said David Certner, a legislative advisor at AARP, the nonprofit advocacy group for people 50 and older.

Some Massachusetts Mutual Life Insurance Co. financial advisors. have also complained. In internal online forums where agents and advisors can voice their opinions on the company’s benefits policies, at least six agents wrote that linking the cost of their health benefits to how much they sell of certain products creates a difficult conflict for them, according to copies of the posts reviewed by The Wall Street Journal.

“Associating benefits with … manufacturing is an inherent conflict of interest,” a financial advisor wrote last year. “Please reconsider this decision not only because of the pandemic, but also because it is a better business model for the future.”

MassMutual, based in Springfield, Massachusetts, says its practices are compliant and aligned with customers’ needs and interests. “The longevity of our success is, in our view, directly linked to our consistent emphasis on serving the interests of our customers, and we are constantly reviewing our policies and practices to ensure that all legal requirements are met” , says MassMutual spokeswoman Paula Tremblay.

Agents can sell a variety of MassMutual products to meet their annual minimum and qualify for health and medical benefits, including various types of life insurance and annuities.

Last year, MassMutual cut the credit its agents and advisors receive for selling the company’s investment products, including variable annuities and variable life insurance. MassMutual said it made the change to comply with new conflict of interest rules issued by the Securities and Exchange Commission, according to a memo MassMutual distributed explaining the move to its sales team.

SEC rules allow companies to continue to associate healthcare and other benefits with product sales.


Photo:

Gabriella Demczuk for The Wall Street Journal

The change made it harder for some MassMutual agents to meet the annual minimum, according to several posts on the internal message board.

In the internal forums, agents said: the coronavirus pandemic had also made it more difficult to meet customers and sell new products. The new policy “certainly does not extend a helping hand to producers likely to be affected by Covid,” an agent wrote on the internal forum in October. Some other agents wrote that they appreciated MassMutual’s waiving of other requirements in light of the impact of the pandemic on business.

Agents who failed to meet sales targets last year would lose access to subsidized health insurance in 2021 as a result, according to memos MassMutual sent to agents. An agent whose spouse and children were covered by the company’s health plan paid $1,268 per month in 2020. Without the subsidy, monthly premiums would be nearly twice as high: $2,506, according to rates reviewed by the Journal.

Mass Mutual disclosed in a regulatory brochure given to clients that linking health and retirement benefits to sales “creates an incentive for our finance professionals to recommend more products, increase investment advisory account assets, and sell those products or services that pay them more.”

The disclosure applies to the sale of securities, including products such as variable annuities, which are a hybrid of insurance and investments. Those products offer buyers insurance benefits, but with a future value tied to the performance of assets such as mutual funds.

Securities regulators in 2019 stricter restrictions imposed on conflicts of interest—including many types of compensation, which may affect the sale of such investments. However, the SEC’s new rules allow companies to continue to associate healthcare and other benefits with product sales.

Consumer advocates say the SEC should have looked more closely at the conflict.

In adopting the rules, the agency reasoned that certain benefits should not be equated with incentives. Regulators have decided that health insurance and other benefits, based on full-year productivity, don’t have the same impact on a seller’s recommendations as the prospect of monetary rewards tied to short-term sales goals.

Other mutual insurance companies, including New York Life Insurance Co. and Guardian Life Insurance Co., also reveal that agents’ health benefits may be linked to product sales. At New York Life, agents who have graduated from the company’s training program are eligible for subsidized benefits based on sales production. New York Life waived its 2020 sales targets due to the pandemic and allowed agents to keep their cheaper health insurance coverage regardless of their sales.

A Guardian spokesperson said that “potential conflicts related to these grants are mitigated on the investment side by a number of measures that comply with all Finra and SEC requirements.” Finra, or the Financial Industry Regulatory Authority, is a private regulator of securities firms in the US and is regulated by the SEC.

NYLIFE Securities LLC, the brokerage of New York Life Insurance, says in a brochure given to clients that “purchases of all products offered by us and our affiliates determine the compensation and benefits for our financial professionals, including the right to pension, medical and life insurance.

MassMutual’s products are published in a grid that gives agents different credit levels for their contract status and health and medical benefits, depending on the type of product they sell, according to internal company memorandums.

“We offer a wide range of proprietary and non-proprietary financial protection and accumulation products, and most importantly, there is no requirement for certain types of products, and our financial professionals are always free to offer products from other insurers,” said Ms. Tremblay.

Write to Dave Michaels at dave.michaels@wsj.com

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