"Caveat emptor." "Too good to be true." "Look before you leap." All the truisms that apply to consumer protection also apply to agents who are researching insurance solutions for their clients. Unfortunately, the opportunity to increase their client's investment yield or decrease their retirement health insurance expenses often leads agents down a perilous path that can end with fines, sanctions, client lawsuits and even license revocation.
"Many times the sales materials will be impressive," says Jeff Atwater, CFO of the Florida Department of Financial Services. "And fabricated letters from regulators or others will give the appearance of legitimacy." Atwater mentions a number of warning signs agents should be aware of, particularly in the health insurance arena:
- Requiring consumers to join trade associations, unions or affinity groups to be eligible for coverage.
- Use of the phrase "Multiple Employer Welfare Arrangement."
- A claim that the product is a federal or ERISA plan, and therefore exempt from state regulation.
In the investment area, Atwater continues to see many bogus schemes ranging from communications equipment companies to real estate and land development opportunities. Most such deals turn out to be unregistered securities. But they are so well packaged that many agents continue to recommend them to their clients and even purchase them themselves.
Do due diligence
The solution isn't hard to see: Do full due diligence before recommending a client purchase insurance or an investment from an insurance company. The initial step is to verify that the insurer or investment provider is properly registered and/or licensed in the agent's state.
