Compliance Solutions

1. Compliance Solutions Session 3: February 27, 2006 Session Producer: Karen Smyth, Product Director Long Term Care Prudential

2. Panelists • Maryann Glotzer, LIMRA International • Brian Atchinson, IMSA • Elizabeth Lovaas, New York Life

3. What is LIMRA International? • A member-owned organization, dedicated to meeting the information needs of companies involved in marketing insurance and investment products. Through the application of cooperative and custom research, we strive to deliver insights that help bring the complex world of financial services into focus. • We know your company, your products, your business, and most importantly, compliance issues.

4. Why a Customer Assurance Program (CAP)? • Reaction to class action suits and market conduct concerns of the industry • If customers misunderstand the provisions of their products -- sales practices aremisleading • The only way to know customers understand -- ask

5. Why CAP? • CAP is the industry standard for benchmarking customer satisfaction at time of sale. • Endorsed by IMSA • Over 100 companies using CAP for: • Life • Annuities • Long Term Care

6. What is CAP? • Survey of recent buyers

7. Drawing Analysis & Imaging Percent of Life Customers Unaware They Bought Life Insurance Report What is CAP? • LIMRA prints questionnaires and envelopes with the company’s logo and colors • LIMRA mails questionnaires along with postage paid return envelopes • LIMRA pays all mail out and return postage costs • LIMRA sponsors a drawing to enhance response rates • LIMRA analyzes results and provides reports Questionnaire Cover letter

8. Questionnaire

9. Questionnaire

10. Reports from CAP • Company summary with industry norms • Reports by Distribution Channel • Regional, marketing, and producer-level reports • Identification of any units or producers who differ significantly from overall company results • Name, address, and policy numbers of every policyholder who indicates a significant misunderstanding

11. Additional Information from CAP • Electronic images of returned surveys in client’s own handwriting

12. Most Comments are Positive! I just wanted to say I love my agent Mike @ your office in Claremore, OK. He’s the best!!Heather K.

13. Benefits of Using CAP • Monitors sales practices without disrupting sales process • post-sale so does not diminish producer productivity • Prompt reinforcement with policyholders • reinforcing the reasons for buying immediately after sale can improve persistency • elicit complaints before they fester into grievances • Communicates expectations • survey content shows producers what company expects its customers to understand about their purchase

14. Benefits of Using CAP (Continued) • Independent administration • provides an arm’s length unbiased analysis and plaintiff lawyers cannot contend company is auditing itself • Industry benchmark • provides standard against which to judge performance • strength in numbers • CAP User’s Group and CAP Connection

15. Using CAP CAP tells you: • Which customers are confused • What they’re confused about • Who or what confused them

16. Using CAP • Analyze the exceptions • Do you need to contact the client? • Do you need to contact producer? • Do you need to contact a supervisor? • Do you need to contact marketing?

17. Using CAP • Establish procedures • Document all actions • Document responses to those actions • Forward information to anyone who might be interested

18. Using CAP • Publish procedures • Copy producers on communications with their clients • Copy supervisors on communications with their producers

19. Using CAP • Track activity by regions, production units, and by producers • Communicate the results to the regions, production units and producers • Encourage interest

20. Using CAP • Defend producers from frivolous complaints • Defend against insurance department actions • Defend against law suits • Publish your successes

21. Questions?

22. Compliance Solutions: IMSA Assessments Brian K. Atchinson February 27, 2006 Anaheim, California Focused on Solutions: The 6th Annual Intercompany LTCi Conference

25. “The secret of life is honesty and fair dealing . . . if you can fake that, you've got it made.” Groucho Marx

26. What Is IMSA? • Independent, nonprofit standards-setting organization. • Promotes high ethical standards in the marketing, sales and service of individual life insurance, long-term care insurance and annuities.

27. Why IMSA? • Organized in early 1990s; a response to crisis of consumer confidence in the insurance industry. • Provides rigorous, measurable, national standards. • Identifies problems early before they become widespread.

28. Principles of Ethical Market Conduct • To conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, it would apply to or demand for itself. • To provide competent and customer-focused sales and service. • To engage in active and fair competition.

29. Principles of Ethical Market Conduct • To provide advertising and sales materials that are clear as to purpose and honest and fair as to content. • To provide for fair and expeditious handling of customer complaints and disputes. • To maintain a system of supervision and review that is reasonably designed to achieve compliance with these Principles of Ethical Market Conduct.

30. IMSA Qualification To qualify, a company: • Develops and implements policies and procedures in support IMSA’s Principles. • Conducts an extensive self-assessment. • Undergoes an independent review conducted by an IMSA-qualified assessor. • Documents compliance with the six key principles, a minimum of 144 separate criteria.

31. Suitability Needs-based Selling

32. IMSA: Compliance Solution Needs-based selling. • Evaluate a customer’s insurable needs and financial objectives. • Use of fact-finding tools. • “Suitability” determined through needs-based selling.

33. IMSA: Compliance Solution Producer supervision. • Adequate screening and background checks. • Adequate training and supervision. • Data collection and ongoing monitoring and review.

34. IMSA: Compliance Solutions Clear and fair advertising, marketing, and sales materials. • Maintain consistent advertising review procedure. • Materials are easy to understand. Proper disclosure. • Compliance with laws and regulations on advertising, unfair trade practices, sales illustrations, etc.

35. IMSA: Compliance Solution Fair and expeditious complaint handling. • Written and verbal complaints. • Track underlying problems to address systemic issues.

36. Ethics = Commitment to Continuous Improvement 2006 IMSA Standards Update

37. Value of IMSA IMSA-qualified companies have: • Fewer complaints. • Lower lapse and surrender rates. • Higher financial ratings. Georgia State University Study, 2005/2006

38. www.imsaETHICS.org

39. IMSA in Practice Beth Lovaas, AIRC, MBA New York Life Insurance Company February 27, 2006

40. Agenda • IMSA topics • Membership • Company approach • Self-assessment process • Independent assessment process • Sample certification timeline • Examples of improvement • LIMRA CAP • Conclusion

41. IMSA Topics: Suitability • Efforts to determine product suitable for customer • Evidence of suitability guidelines • Communicate to agents and encourage use in sales process • Submission of suitability review with application

42. IMSA Topics: Distributor and Employee Training • Company products and operations • Company policies and procedures • Replacement, suitability, fair competition, advertising and sales materials, complaints, illustrations • Compliance with laws and regulations • Marketing and sale of products • IMSA Principles of Ethical Market Conduct

43. IMSA Topics: Licensing • Appropriately qualified • Licensed and appointed • Meet applicable continuing education requirements • Assure that distributors do not place business or receive commission if not properly licensed and appointed

44. IMSA Topics: Advertising and Sales Materials • Process for review, approval, and use of materials • Communicate requirements to distributors • Make materials available to distributors • Maintain compliance with laws and regulations related to advertising • Track and dispose obsolete materials

45. IMSA Topics: Replacements • Provide customers with information to make decisions, including state disclosures • Communicate company’s policy and guidelines to distributors, including commissions • Identify and process replacements • Detect undisclosed internal replacements • Monitor agent activity

46. IMSA Topics: Laws and Regulations • Process for tracking and implementing laws and regulations by effective date • Communicate to employees and distributors • Update policies and procedures to reflect changes in laws and regulations

47. IMSA Topics: Complaints • Communicate complaint handling procedures • Inform customers of how to communicate complaints • Handle complaints from state departments of insurance • Monitor complaint trends

48. IMSA Topics: Oversight and Monitoring • Enhanced systems and procedures to supervise and monitor compliance with laws and regulations, IMSA, and company codes of conduct and take corrective action • Monitor customer satisfaction with products and sales practices • Monitor and analyze replacement activity and take appropriate action • Enhanced training for distributors and employees on covered products, Principles and Code, and laws and regulations • Use LIMRA Customer Assurance Program surveys

49. Continuous Improvement 1. Policies and Procedures 6. Act Upon 5. Monitor Continuous Improvement 4. Used 2. Responsibilities 3. Communication

50. Membership • NYL founding member • NYL certified since 1998 and LTC initially certified in 2001 • Membership renewed every three years • Continued compliance with Principles and Code • Certification process is vigorous assessment of company practices in light of Principles and Code