Excelsior by alicejenny


                                        First Quarter, 2005                                                      Volume VII, Issue 1

                                            Ethical Market Conduct Issues for Presidents and Senior Executives

                             IMSA for P&C?
                             The March 21, 2005 Insurance Journal – USA reports that the CPCU Society is looking at IMSA as a model
                             to help the industry restore its image after months of charges about bid rigging and contingent commissions.
                             Written by Andrew G. Simpson, Jr., the article reports that a society task force is researching whether a self-
                             regulatory body like IMSA would be a useful model for the property casualty industry and the role the Society
                             should play in any industry image-restoration effort.

                             “We will look at the IMSA model,” CPCU President Don Hurzeler said. “I’ve asked them to do some fast work
                             before our April board meeting, such as look at an IMSA-type organization and if we are the right people to
                             be involved.”

Hurzeler went on to say the current scandal is a “wake-up call” for an industry that is “horrified” by the illegal activity recently uncovered.
The P & C group obviously recognizes the value of the IMSA seal, that IMSA says is “tangible proof that a company adheres to specific,
stringent market conduct principles.”

We think it’s great that the value of IMSA is being perceived by other organizations concerned about ethical market conduct. “Imitation
is the sincerest flattery,” said C.C. Colton. Let’s hope the IMSA model will serve the P & C folks as well as it has our own industry.

You can read more about this in the March 21, 2005 edition of Insurance Journal East which also includes an interview with IMSA’s
Executive Director, Brian Atchinson.

Has IMSA Arrived? (I think so!)                                                     Congratulations to These IMSA Companies Who
                                                                                     Renewed or Became Members during the first
By Kenneth J. Kalis, CLU
                                                                                                   Quarter of 2005.
Every time I visit with a company or talk with the folks at IMSA I hear new
                                                                                 American National Insurance Company
stories about regulators giving companies recognition for IMSA
membership. Sometimes, it takes the form of a skipped market conduct             Garden State Life Insurance Company
exam, but more often it is an abbreviated exam because the regulators            Standard Life and Accident Insurance Company
have reviewed the IMSA materials the company has chosen to share with            COUNTRY Life Insurance Company
them.                                                                            COUNTRY Investors Life Assurance Company
                                                                                 Symetra Life Insurance Company.
This is a sea change from the situation three or four years ago. Then I          AIG Life Insurance Company*
often heard grumbling about IMSA from people at member companies                 American International Life Assurance Company of New
who didn’t think they were getting “the bang for their buck” out of IMSA         York*
membership. Now that all has changed. Why?                                       American General Life Insurance Company
                                                                                 The United States Life Insurance Company of the City of
Part of change in perception is the result of the current climate regarding      New York
ethical market conduct in the industry and beyond. You will all remember         American General Life and Accident Insurance Company
that IMSA was created by a panel of CEO’s in 1996 to respond to the              Prudential Insurance Company of America
specter of federal intervention in the wake of highly publicized class action
                                                                                 Pruco Life Insurance Company
suits against major insurers.
                                                                                 Pruco Life Insurance Company of New Jersey
Concomitant with the lawsuits was a lack of trust in insurers and in the         American Skandia Life Assurance Corporation
producers that sold their products. An ACLI MAP study showed the                 Allstate Life Insurance Co.
public’s trust level with life insurance agents was at 17%, lower than for       Allstate Life Insurance Co. of New York
used car salesmen. All these factors combined to impact sales, which             Lincoln Benefit Life Co.
stalled and weakened companies’ revenue streams.                                 American United Life Insurance Co.
                                                                                 Liberty Life Insurance Co.
IMSA addressed all these issues successfully. On “opening day” in 1998,          Protective Life Insurance Co.
155 companies were on board and the number grew. Soon the public’s
                                                                                 * Indicates new member.
                                                        continued on page 2
     Page 2                                               EXCELSIOR                                                                             First Quarter, 2005

continued from page 2

trust was restored, agents’ image burnished and sales increased. Then, when the crisis was past, some companies began asking if they
really needed to continue their IMSA membership.

Using a truly data-driven approach, IMSA surveyed the CEO’s of member companies to see how they could continue to serve their
needs. “Regulatory recognition” was the near unanimous consensus from the CEO. They wanted relief from extensive and expensive
market conduct exams. After all, if they had demonstrated their commitment to ethical market conduct, shouldn’t they get some credit
for it from the regulators?

IMSA went right to work on this, gathering input from regulators on what they would like to see so that they could recognize the
companies’ efforts. Part of the problem, a very big part, was negative perceptions that were not reality. For example, the membership
documentation used before 2003 consisted of only a one page report with disclaimers about effectiveness and legal compliance. This
did not inspire confidence among regulators.

What did they want? They wanted reasonable assurance that the Qualified Independent Assessor was independent, did adequate
testing and produced a body of evidence to which the market conduct examiner could refer. One commissioner expressed it to me in
terms of the financial analogy.

“Look,” she said. “It’s our job to do financial exams of companies. We’re not going to stop doing our job just because the company has
a great CFO and a good CPA. But if the CPA does a great job and produces documents that we find useful, our financial exam will go
a lot easier and consume much less time and expense for the company. The same,” she continued, “is true of you as an Independent
Assessor. If you do a great job and give us documentation we can use for assurance with a high level of confidence, our market conduct
exams could be more targeted and less extensive. We won’t need to recreate the wheel.”

I was fortunate enough to be on the IMSA Standards Committee which addressed some of these concerns. The result of this was the
2003 IMSA Assessment Manual, which showed regulators more of the elements they needed to see to gain confidence in the

Now, instead of a one-page Assessor’s report with disclaimers, companies may show regulators the following IMSA documents:
                                                                                                                             Privileged and Confidential
• Statements of Independence from the Qualified Independent Assessors and                                    IMSA QUALIFIED INDEPENDENT ASSESSOR’S SUPPLEMENTAL
                                                                                                                   REPORT FOR JETS LIFE INSURANCE COMPANIES
  Associate Assessors
                                                                                                              b.1 Evidence of   Documentation        Reviewed:
• Responsibility Matrix showing who’s responsible for what                                                    communication     review               Market Conduct Compliance         Satisfactory
                                                                                                                                Interviews           Manual on JLIC.ORG                –Meets
• Supplemental Report (with a copy to the Board of Directors) detailing the testing done                                        Consistent Use       Welcome Kit                       IMSA
                                                                                                                                Testing              Financial Institution Marketing   Standards
                                                                                                                                Company Intranet     New Agent Kit                        Gap
                                                                                                                                Check                Financial Institution Marketing   identified
This substantial body of evidence has gone a long way to helping regulators get the                                                                  Policy and Procedure Manual

comfort level they need with the IMSA process in order to use the IMSA documentation                                                                 Interviewed:
                                                                                                                                                     Chad Pennington
to satisfy regulatory concerns. At our company, we provide even more data that the                                                                   LaMont Jordan
                                                                                                                                                     Curtis Martin
company is free to share with regulators, if they choose to do so. These “extras”
include:                                                                                                                                             50 New Business Files
                                                                                                              b.5 Application   Documentation        Reviewed
                                                                                                              questions         review               Variable Life Application         Satisfactory
                                                                                                                                Interviews           Supplement (Suitability) Form     –Meets
Detailed worksheets showing each sample file reviewed and results                                                                                                                      IMSA
A list of questions asked of the process owners and key executives interviewed                                                                       Interviewed                       Standards
                                                                                                                                                     Anthony Becht                        Gap
A CD with a completed KP4 IMSA software report including scanned images of all                                                                       Chris Baker                       identified

documentary evidence used in the independent assessment.                                                      b.8 Readily
                                                                                                              available tools
                                                                                                                                                     List of software made             Satisfactory
                                                                                                                                Interviews           available to NFL agents           –Meets
                                                                                                                                Company Intranet     Financial Profiles screen print   IMSA
The feedback we have had on this has been very positive. The availability of this                                               Check                Financial Insights screen print   Standards
                                                                                                                                                     Life Portraits Release               Gap
material can save literally hundreds of hours of examination time and cost. It also                                                                  Distribution)                     identified

makes the material much more accessible and enables the examiner to focus on key                                                                     Interviewed
                                                                                                                                                     Doug Brian
areas of interest.                                                                                            1.1.c.1           Documentation        Reviewed:
                                                                                                              Individual or     review               Sample JLIC Report                Satisfactory
                                                                                                              Trend analysis    Interviews           JLIC Quarterly Report             –Meets
                                                                                                                                                     JLIC Procedures                   IMSA
As this feedback continues, I become more and more confident that IMSA is achieving                                                                  JLIC Mailing and Response         Standards
                                                                                                                                                     Rate                                 Gap
its purpose and that it has become a permanent and important part of the industry                                                                                                      identified
landscape. This is evident from its increased visibility in today’s environment of high                                                              John Abraham
sensitivity to ethical market conduct and ethics and integrity in general.                                    c. 3 Feedback         Documentation    Reviewed:
                                                                                                              for corrective        Review           Agendas from NFC Regional         Satisfactory
                                                                                                              action                Interview        Sales Managers                    –Meets
Hardly a day passes without some noise about improper sales activity or other financial                                              Interviewed:                                      Standards
                                                                                                                                     Toby Gowin                                           Gap
irregularities that seem to have an unending shelf-life. New York Attorney General                                                                                                     identified
Elliott Spitzer is issuing requests for information and subpoena’s to companies in an This substantial body of evidence has gone a long way to helping regulators get the
                                                                                          comfort level they need
                                                                                                     of New our the IMSA process to even moreDay parade to
industry probe that seems to know no bounds. The New York Post reports Spitzer opted out concerns. Atwith company,St.provideuse the IMSA documentation to satisfy
                                                                                                                    York’s we Patrick’s data that the company is
                                                                                          free to share with regulators, if they choose to do so. These
attend a $1,300 a plate dinner for trial lawyers at the ritzy Plaza Hotel sponsored by none-other-than Johnnie Cochran. “extras” include:
                                                                                                                 N   Detailed worksheets showing each sample file reviewed and results

                                                                                                                                                            continued on page 3
    Page 3                                       EXCELSIOR                                                     First Quarter, 2005

continued from page 2
Spitzer, according to the Post, is dead-set against Bush’s tort-reform bill, opposing caps and attacking the
president for going after high legal costs and court awards as factors causing higher insurance premiums.
The Post quotes Spitzer as saying, “The president is out there attacking problems that drive insurance premiums
higher . . . But I have not heard a single word from the White House saying, ‘Maybe, just maybe, premiums are
higher because the insurance companies formed an illegal cartel.’”

And Spitzer is not alone. LOMA’s Scott J. Cipinko, Executive Director, Life Insurance Council, predicts that
insurance probes will continue and possibly “cause the true federalization of insurance.” ( See LOMA Resource,
December 2004).

Of course, no one know what the eventual outcome will be, but in this regulatory climate IMSA’s aegis is well
worth having. IMSA continues to play an important role working with the NAIC, NCOIL, the rating agencies and
                                                                                                                 “Illegal cartel??”
the federal government to promote honesty and integrity, and its work is paying off.                          You gotta be kiddin’ me!!
Testimonies to this include not only its staying power, but also its adaptability to the emerging needs of the marketplace and its ability to
continue to attract new members. If imitation is the sincerest form of flattery, IMSA may have that too, as the Property and Casualty
industry looks to the IMSA model to address ethical issues it confronts.

Has IMSA arrived? I think so. As it approaches its tenth anniversary next year it firmly demonstrates that IMSA will continue to play an
important role in promoting ethical market conduct in the insurance industry.

     Kalis Company to Sponsor IMSA Best Practices Workshop
  We are pleased to again be sponsors this year of the IMSA Best       Who Should Attend:
  Practices Workshop. Please be sure to say “hello” during the
                                                                       Compliance officers, compliance staff, Qualified Independent
  break on Thursday morning. The rest of the details are in the
                                                                       and Associate Assessors, professionals involved in the
  note to all IMSA members and Assessors from John Dohmen:
                                                                       marketing, sale and service of individually sold life insurance,
                                                                       long-term care insurance and annuity products and
                                                                       representatives from companies wanting to learn more about
  I am resending this message as some of you may have had
  technical difficulties with the original message.
                                                                       Topics and Speakers:
  To: IMSA Corresponding Officers, Qualified Independent               Subjects to be covered include: SOX Reviews, Culture of
  Assessors & Associate Assessors                                      Compliance Requirements, NAIC Market Analysis, NASD
  “Always a great overall meeting . . . well-rounded between           Update, Regulator Panel, Producer Forum, QIA Sharing of
  presentations and discussion time. Full of new ideas and             Observed Best Practices, Independent Producer Training and
  ways for improvement.”                                               Monitoring, IMSA 101 and much more.

  “The Best Practices Workshop keeps improving!”                       A tentative line-up of speakers includes, among others, Deanna
                                                                       Osmonson, AIG American General; Diana Hallberg, AEGON;
  Comments from 2004 participants                                      Joel Ario, Oregon Insurance Division; NASD’s Andy Favret; QIA’s
                                                                       Denny Groner, Gary Harriger, Ken Kalis, Kay Phillips and Tom
  Join us for the 5th annual Compliance Best Practices Workshop,       Stallings; Marge Spencer and Jann Goodpaster, American
  May 11-13, 2005, at The Hyatt Regency Chicago. This one-of-          Express; Martin Shaw of Raising Standards-UK and many more.
  a-kind workshop offers the opportunity for both IMSA member
                                                                       Join us for this important and unique hands-on gathering. Return
  and non-IMSA member company staff to learn about and
                                                                       the attached registration materials or register on-line at
  discuss Compliance Best Practices that can be applied at
                                                                       www.IMSAethics.org. There are a limited number of sponsorship
  your company as well as the top market conduct and                   opportunities available which are outlined on the attached flyer.
  compliance issues facing the life insurance, long-term care          Here is your chance to get your company recognized and
  insurance and annuity industry today. Hear directly from your        support this worthwhile workshop. Please call IMSA at (240)
  industry colleagues, experts in the industry, as well as             497-2907 for any additional information or questions or check our
  regulators.                                                          website, www.IMSAethics.org, for updated information.
  Our unique round-table seating encourages one-on-one                                         See you in Chicago!
  interaction and discussion of Best Practices and problem                                     John Dohmen
  resolution techniques throughout the industry. Discover how                                  Associate Director
  other professionals manage, develop and implement ethical                                    Tel: (240) 497-2906
  practices that deal with complex compliance issues. Learn what                               Fax: (240) 497-2901
  compliance issues are facing the industry today and the outlook                              E-mail: johndohmen@imsaethics.org
  for the future.                                                                              Website: www.imsaethics.org
   Page 4                                              EXCELSIOR                                            First Quarter, 2005

Raising the Bar: What Next?
Part of IMSA’s vision is one of continuous improvement. For this reason, substantial upgrades to the assessment process have
been made with each cycle. For example, after the first cycle, the “point in time” assessment was broadened to require continuous
compliance throughout the membership period. During this first cycle where companies could renew their membership, a
requirement for an “ongoing system of monitoring” was mandated. Along with these stiffer requirements was some important
language, including suggested contractual language, for the managing and on-going monitoring of contractual relationships where
duties or responsibilities had been delegated to third parties.

In 2003, the IMSA Assessment Manual was introduced to assure consistency among assessors. This augmentation to the
Assessment Handbook helped align the assessment process conceptually with the market conduct examination approach used by
regulators and helped member companies get recognition from regulators for IMSA membership. Now, as we end the third cycle of
assessments, what lies ahead? We expect more changes in the spirit of continuous improvement and are interested in any thoughts
you may have. Just drop us a line at www.kkalis.com or give us a call at 386-462-1074. We’ll be sure to share your ideas with the
decision makers at IMSA.

                               D a f f odils

                               I wandered lonely as a cloud
                               That floats on high o'er vales and hills,
                               When all at once I saw a crowd,
                               A host, of golden daffodils;
                               Beside the lake, beneath the trees,
                                                                                 Spring has sprung!
                               Fluttering and dancing in the breeze.             Hope you are enjoying yours. Hope you
                                                                                 all had a Happy Easter or Passover.
                               Continuous as the stars that shine                Here’s a favorite spring time poem from
                               And twinkle on the milky way,                     one of the great English poets.
                               They stretched in never-ending line
                               Along the margin of a bay:
                               Ten thousand saw I at a glance,
                               Tossing their heads in sprightly dance.

                               The waves beside them danced, but they
                               Out-did the sparkling leaves in glee;
                               A poet could not be but gay,
                               In such a jocund company!
                               I gazed—and gazed—but little thought
                               What wealth the show to me had brought:

                               For oft, when on my couch I lie
                               In vacant or in pensive mood,
                               They flash upon that inward eye
                               Which is the bliss of solitude;
                               And then my heart with pleasure fills,
                               And dances with the daffodils.                      Excelsior, A Q u a rterly Newsletter for Life Insurance
                                                                                   C o m pa ny P residents and Senior Officers, is published
                               b y W i l l i a m Wo r d s w o r t h                                        by The Kenneth J. Kalis
                                                                                                           Company, Inc., Client-Focused
                                                                                                           IMSA Expertise, specializing in
                                                                                                           IMSA assessment services.
                                                                                                         Kenn eth J. Ka lis, CLU an d
                                                                                                         Qualified Independent Assessor,
                                                                                                         E d i t o r.
                                                                                                         Mailing A d d ress: 17220 NW 78th
                                                                                                         Avenue, Alachua, FL 32615.
                                                                                                         Telephone 386-462-1074. Fax 386-
                                                                                                         462-1075. Email kkalis@aol.com.
                                                                                                         Web site kkalis.com

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