Because of economic conditions, more and more Americans recognize the importance of professional financial planning and protection. Unfortunately, because of unnecessary and inconsistent state regulations, the financial-protection needs of many American families aren't being addressed.
Life insurance agents, who for generations have provided American families with guidance and counsel on basic financial protection concerns, are increasingly rare, even though surveys show that many Americans know that they are underinsured and are concerned about their financial security.
One reason is that many states effectively have closed the door to prospective new agents. This not only deprives many families of the financial advice they need, but it places unnecessary restraints on job opportunities in a major sector of the American economy, life insurance.
The problem is that many states impose excessive and unnecessary burdens on applicants for a life insurance agent license. Many qualified and dedicated people interested in a career in life insurance are deterred by these burdens.
This, in turn, creates a shortage of professional financial advisers.
Each state establishes its own unique requirements for obtaining a life insurance agent license. This has led to significant variations across the nation in licensing standards, even though life insurance products and family financial needs are similar, regardless of state borders.
Moreover, in many jurisdictions, the requirements may have, at best, a tangential connection to the skills and knowledge required of a life insurance agent. Consider, for example, the licensing exam.
Every state requires prospective agents to take an exam that, in theory, is designed to test an applicant's knowledge and understanding of life insurance products and customer needs.
But in many cases, theory doesn't match reality. In some states, the questions on the licensing exam are inconsistent with study material or content outlines.
Indeed, pre-licensing study material provided to the applicant can be out-of-date with regard to laws and regulations.
Moreover, some state exams ask questions that appear to test skills other than knowledge of insurance.
In one documented case, the provider of a licensing exam was found to have deliberately designed questions intended to confuse applicants. The vendor would earn more income by having a higher fail rate and forcing applicants to take multiple exams. An investigation of the provider revealed that some questions were so confusing that even seasoned insurance department officials had trouble passing the exam.
The experience in Illinois should serve as a model for the nation.
In the 1970s, one insurance company, Golden Rule, waged a prolonged battle against the provider of the state licensing exam, charging that it was racially biased.
At that time, the disparity between the pass rates of white and black applicants was 25 percentage points. The provider eventually agreed to collect and analyze the demographic information, and institute exam reforms.
The result is that today, whites and blacks pass the Illinois exam at about the same rate, well above 70%. This means that more qualified and professional agents are available in Illinois.
The crucial lesson from the Illinois example is that thoughtful and targeted licensing reforms can help increase the number of agents without reducing standards. Life insurance agents offer advice on some of the most important financial decisions of American families.
Agents should be held to very high standards of knowledge, diligence and ethics. But as happened in Illinois, states must remove artificial barriers that deter talented people from seeking a career in life insurance:
• The licensing process must be made more efficient and uniform.
• Licensing exams should be standardized and the content aligned with the study material.
• Exams should be analyzed to eliminate cultural or racial biases.
• Licensing fees should be reasonable so that applicants from all income levels have a chance to seek life insurance agency careers. Although total out-of-pocket costs in some states are as low as $55, other states charge as much as $411.
States should consider a national curriculum and/or national study guide to promote uniformity and make it easier for companies to recruit and train prospective producers on a national basis.
American families need and want the opportunity to discuss their financial needs with qualified advisers. Lifetime financial planning often is a difficult and complicated issue for families to face on their own.
Too many Americans put off addressing their financial needs until they come into contact with a life insurance agent who can provide the knowledge and encouragement they need to make tough decisions. That is why the Internet and other mass media are no substitute for a personal, one-on-one discussion with a qualified insurance professional.
Establishing logical, national standards for life insurance agent licensing would encourage financial protection and job opportunities at a time when both are sorely needed.
Frank Keating is president and chief executive of the American Council of Life Insurers.