The insurance industry hasn't done itself any favors when it comes to earning the trust of financial advisers and their clients.
Insurers have repeatedly frustrated these stakeholders by making business decisions that are seemingly contrary to their interests, whether it's raising costs for owners of universal life insurance policies, hiking premiums for long-term-care policyholders or, in the case of variable annuities, trying to wriggle out of costly promises they made to investors via buyout offers.
These are systemic issues that create an environment of mistrust, of being constantly on one's guard to ensure that a client's financial plan isn't upended.
"You'd have to have your head in the sand to not acknowledge that the interest of many of the insurance companies is directly opposed to the interest of the consumer," said Scott Witt, a fee-only insurance adviser.
The decade of rock-bottom interest rates that began around the time of the 2008 financial crisis appears to be a common scapegoat used by insurers. How could they have predicted interest rates would stay low for so long, they ask.
For long-term-care insurers, there were additional miscalculations: More people held onto their policies than expected, and use of the policy benefits by clients was heavier than anticipated.
These problems have led a slew of companies like Genworth Financial Inc. and Massachusetts Mutual Life Insurance Co. to raise premiums for existing clients, who may have assumed their premiums were fixed. These increases are approved by state insurance regulators and justified as being necessary to shore up the insurers' financial strength.
Universal life insurers have also quietly raised underlying insurance charges and reduced interest rates credited to policyholders, which has forced many clients to make a tough and unexpected decision: lapse the policy or pay higher premiums to keep it afloat.
"Nobody buys that policy thinking the company may raise my cost of insurance rates," said Sheryl Moore, president and CEO of consulting firm Moore Market Intelligence.
Several companies have been sued for issues related to insurance costs, including Nationwide Life Insurance Co., Lincoln National Corp., John Hancock Life Insurance Co. and Axa Equitable Life Insurance Co. In October, Transamerica Life Insurance Co. settled one such lawsuit for $195 million.
The New York Department of Financial Services issued a consumer alert Thursday about universal life policies, urging buyers to beware of the possibility of annual increases in internal policy costs. The department has received nearly 1,400 complaints from New York consumers in the past five years about such policies.
Further, many variable annuity providers have tried to circumvent their contractual promises to pay clients a guaranteed level of income, often by offering them a cash incentive for surrendering the policy or exchanging it for another annuity. Clients aren't obligated to take such an offer, but insurers note in filings with the Securities and Exchange Commission that they could gain a financial benefit by getting such costly benefits off their books. These offers primarily affect VAs sold before or around the time of the financial crisis.
Advisers' clients are lucky — at least they have a financial professional who can help gauge if a buyout offer is in a client's best interests. Those without advisers may not have the wherewithal to make such a determination.
Advisers believe insurers' problems don't stem solely from actuarial miscalculations, but say that some companies engage in a sort of arms race to attract higher sales from independent brokers and insurance agents. Insurers may offer annuity features that appear better than competitors' or juice life insurance illustrations to help sell policies, advisers said.
"Often, the most attractive illustration is the riskiest policy," Mr. Witt said.
In fairness to insurers, many of the aforementioned actions appear to be perfectly allowable and within insurers' contractual rights and may indeed be necessary to preserve their financial strength. And advisers say shoring up the balance sheet is a necessary evil, or else risk the company's insolvency.
"Yes, it stinks when they have to increase long-term-care premiums for someone, or raise the cost of insurance on a universal life policy, but the most important thing is the viability of the insurance company," said Gregory Olsen, a partner at Lenox Advisors Inc.
Of course, that doesn't change the inherent frustration such increases cause for advisers and customers.
Advisers do seem to believe many insurers have learned from past mistakes. Long-term-care insurers have become more realistic about their pricing; variable annuity providers allow fewer, less aggressive investment options, and offer more conservative income guarantees.
However, some observers say that the arms race continues, and that advisers and clients should remain vigilant.
"They still have to have shiny, bright objects to get the agent to sell them," Ms. Moore said.