From: Jeff W. Bird
Sent: March 31, 2005
Subject: File No. S7-06-04

To whom it may concern:

I am an insurance broker in Minneapolis, and would like you to consider the following in regard to new disclosure rules for sales of variable life products (I only sell variable life, no mutual funds, and so will limit my comments to variable life. The issues for variable life and mutual funds are different.)

1. As you know or should know, adequate and complete commission disclosure rules already exist.

2. Your singular focus on commissions completely misses the real consumer issues regarding variable life.

Your assumption is that agents and brokers are bad, and the Government needs to protect consumers from them. Well, many agents/brokers are greed motivated, and consumers do need protection, but further compensation disclosure will not help the consumer.

To put the issue in context, you need to know that with life insurance, carriers have been trying to sell direct and get rid of agents for 100 years. But in addition to newspaper and radio, the most recent technological innovation, the internet, also failed to increase the amount of "direct" life insurance sold from the 1%-2% historical average.

The only conclusion is that agents are needed as part of the carrier's business model, serving as the product distribution channel. The agent is not the problem. Unlike commodity type products such as mutual funds, carriers know life insurance must be sold by an agent. Therefore its cost components, including agent compensation, have traditionally been intentionally obfuscated from the consumer by the carrier because these are all part of its strategy to distribute product.

In this context, the SEC should also be reminded that consumers are 50% underinsured, and that life insurance sales have not been growing versus other financial products.

Two things I would push for to help consumers be treated fairly:

1. Allow product comparison. Right now, NASD rules say that the variable life product is too complicated, and cannot be compared to other variable life or other financial vehicles. These products are not hard to compare, and comparison is at the core of consumer protection. Product comparison will of course include compensation, and will therefore provide a method for true consumer protection.

2. Carriers need to provide products with real trade-offs. If carriers want to package term and nonguaranteed elements into product, they must be more than a compensation dial. Similar to whole life with term blends, the client needs options, but must take on more risk for lower outlay. Many products issued by carriers today do not meet the smell test of treating same age/risk classifications fairly.

Finally, the carriers need to wake up and realize they could lose much of their distribution if the spotlight is put on agents compensation alone. Many agents don't add much value, are struggling to make it go as is, and with additional pressure put on them, will likely give up. (This happened several years ago in the UK, where life sales dropped significantly when the spotlight was put on only one aspect of the product, commissions. The result, less consumers own life insurance).

While this looks like an "agent commission issue", it is really a carrier distribution issue. Perhaps the question you should be asking is, what could we do to entice consumers to purchase an adequate amount of life insurance, so their families are not dependent on the Government when a breadwinner dies.

Why would you think that because there is fraud in the property casualty business(Marsh/Mac), that you must issue new regulations for all insurance products? Yes, there needs to be adequate disclosure, but there will always be some "bad apples" committing fraud no matter how many laws you pass.

I hope my comments were helpful and thought provoking.

Jeff Bird, JD, CLU