FTC Chairman Timothy Muris has introduced a new social program to the American people with the publication of the Telemarketing Sales Rule (TSR) that will begin to take effect March 31.
According to Chairman M's Little Red Book, it is a “work-to-welfare” policy: A unique piece of social engineering that will ensure that approximately 8,800 of the estimated 12,750 telephone sales representatives supporting insurance sales will be out of a job. More than half of those TSRs, according to industry estimates, are single parents living in small towns and rural areas supporting outbound call centers.
For those 4,400 American moms and dads there simply aren't any other jobs. The only option: back to welfare.
Chairman M has more to be proud of. He has kept his arrogant promise of a “Christmas gift” to the American people by virtually destroying a business that, according to the Direct Marketing Association's WEFA study, spent more than $1.8 billion in 2002 to produce $17 billion of insurance premiums.
Chairman M and his intellectually challenged gang have taken this action to regulate, at best, an annoyance. The rational measure for regulation — harm to American consumers — has not been considered. Because, obviously, a phone call harms no one.
So teleservice providers, by industry estimates, stand to lose about 70% of that $1.8 billion expenditure. A loss of almost $1.3 billion.
Insurance companies could lose an estimated $11.9 billion in annual revenue. And the damage to the insurance industry is only a fraction of the damage to the whole outbound telemarketing sector.
Four issues contribute to the demise of outbound insurance telemarketing.
First, according to the FTC, consumers have the “right to privacy” regarding their own telephone number. Allegedly, telemarketers violate that right when placing an unsolicited sales call.
The argument might hold more water if consumers' telephone numbers were not a matter of public record. Household telephone numbers are published in state, regional and local directories, and are available to anyone. By agreeing to the publication of their telephone number the consumer cannot have “an expectation of privacy,” and — as a practical matter — they have opted in to the commercial use of that number.
Essentially consumers have the right, for an additional fee, to opt out of this system by obtaining an unpublished telephone number. Consumers who do so have a clear expectation of privacy.
Since the mechanism exists already for an opt-out, the question is raised: Why must there be a state or national do-not-call list?
Second, the national DNC itself is an enormous issue. The FTC does not exercise regulatory control over the insurance industry. However, the agency is extending its reach to the industry by requiring teleservice providers to purchase the DNC list for each of their individual clients — regardless of industry segment. This is, of course, an end run around the FTC's regulatory authority.
Assuming this stands up to the legal challenges, here are two critical facts. When a consumer signs up for a state DNC for which a fee is charged, about 5% of the market signs up and pays.
When there is no charge for a state DNC, then about 50% of the market signs up.
Simple arithmetic demonstrates that the FTC plan to offer an automatic opt-out, coordinated with state DNC lists, results in half of the approximately 110 million U.S. households signing up.
That leaves 55 million households as the available insurance telemarketing universe.
About 36% of the available universe (about 20 million households) would not qualify by reason of age or income or several other basic marketing requirements for an insurance offer, depending on the product sold.
That leaves a marketing universe, on average, of 35 million qualified households for an insurance telemarketing solicitation.
A universe that will quickly become oversaturated with multiple contacts from multiple insurance providers, effectively killing this medium as an efficient marketing tool.
And that, apparently, is the purpose of the FTC's revised TSR.
Third, the provision of free-to-pay conversion requirements. In insurance, a favored, and seemingly well-received offer, is the bonus offer. The consumer is offered two to three months of insurance coverage for a variety of products at no cost. Then the premium is charged to a credit card, checking account or mortgage account at the conclusion of the no-cost trial period.
When a consumer accepts the offer, universally, audio of the acceptance is recorded by a licensed insurance agent. At any time during the bonus trial period, the consumer can cancel the coverage, and it will not be automatically charged to the consumer's account.
Moreover, if the first premium is charged against the consumer's account, the consumer can still cancel the coverage and received a full refund of the premium paid. You can't get more express consent than that.
Not so, says Chairman M. Now the telemarketers are required to:
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Obtain from the customer the last four digits of the account number to be charged.
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Obtain from the consumer express agreement to the charge.
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Make and maintain an audio recording of the entire telemarketing transaction.
From a direct marketing perspective, this three-step confirmation process adds nothing to consumer protection and inhibits the effectiveness of the bonus offer and its cost (since more talk time will be consumed during the process).
These onerous and unnecessary requirements are designed to eliminate this marketing offer. And the elimination of the offer eliminates telemarketing hours and telemarketing jobs.
Fourth, and finally, the uneven application of the rule is puzzling. Telemarketing service providers are subject to all the provisions of the revised TSR. However, insurance companies and other financial services organizations can continue to call if the outbound call center is owned by the company.
Why? What makes it OK for the company to call? Since the FTC is charged with protecting consumers from telemarketing abuse, is the message from the agency that all teleservice providers are abusive, and call centers owned by companies are not abusive?
Or is it an acknowledgment that the agency has no jurisdiction over the insurance and financial service providers?
It's an article of faith in American business that the market governs business success. Publication of a national do-not-call list, and several other measures contained in the TSR, were probably not necessary.
For the last four years the efficiency of insurance telemarketing has been eroding. While the revenue volumes continued to increase, cost per sale also went up.
It has become more expensive to use this medium to transact sales. Eventually, the cost to call and the cost to close a sale would have converged and the medium probably would have become inefficient for the kind of mass-calling programs necessary to sustain the profitability of the technique.
Elimination of mass calling would have ameliorated consumer anger at the occasional annoyance such calls produced.
What do people in the telemarketing business think about the revised rules? Their reaction is interesting.
George Kestler, chairman and CEO of Americall Group, is overseeing the technology compliance components of the TSR. But he acknowledges that the DNC is going to cost jobs and revenue — no question. He also observes that the existing customer exemption is limited to single companies. For example, while Travelers may be able to call its customers, its owner Citigroup cannot.
ATA chairman Tom Rocca worries that the overall economic impact of the DNC is going to be severe. He also emphasizes that, “early in this yearlong process, the FTC indicated that it strongly favored a national DNC registry. The subsequent rule-making process has carried forward that policy preference.”
John Crouthamel, chairman of the DMA's Telemarketing Council, worries “what other doses are coming. The federal government just comes in and adds another layer without any concern for the outcome or what it might do next.”
Perhaps the most telling comments come from Robert Rapp, president of the Results Cos. “For the past eight years, Results has worked with economically distressed rural communities in providing the technology, resources and capital required to provide high-quality telemarketing to existing customers of banks and insurance companies,” he says. “If banks, insurance and other companies are no longer allowed to utilize independent companies to contact existing customers, our business and many other community businesses like ours will be devastated.”
Rapp's company employs 2,000 people at 20 rural locations.
With due respect for the lawsuits launched by the Direct Marketing Association and the ATA and the associated companies, Congress, the FTC and the FCC have made a decision: Outbound telemarketing is dead.
Chairman M and the politicians can take solace. They have succeeded in destroying an annoyance. They have tamed the menace of a phone call.
And to think, all a consumer had to do was hang up!
Don Jackson is an author and chairman of JCG Ltd., a consulting firm specializing in insurance direct marketing. Jon Hamilton is president of telemarketing consultancy JHA Telemanagement.
