Regulators Narrow Scope Of Suitability Model And Cut Out IMSA Compliance Provision
Sparks flew here at a meeting of the National Association of Insurance Commissioners life insurance and annuity sales suitability working group.
Utah Insurance Commissioner Merwin Stewart spoke up for regulators who are asking the Kansas City, Mo.-based association to come out with a broad statement of suitability principles.
“We want honesty,” Stewart said.
Regulators should expect participants in the life insurance industry to follow the “Golden Rule” and treat others as they want to be treated, Stewart said.
But Carroll Fisher, Oklahoma insurance commissioner, argued that insurance departments should focus on regulating life insurers financial stability.
Trying to regulate morality “will create a feeding frenzy for plaintiffs attorneys,” Fisher warned.
The NAIC formed the suitability working group to develop a Life Insurance and Annuities Suitability Model Regulation, to increase the chances that life and annuity sales recommendations will match consumers needs and resources.
The working group made two hotly debated decisions at the summer meeting on its draft of the model regulation.
One decision cut provisions allowing insurers to comply with the suitability guidelines by complying with suitability standards from the Insurance Marketplace Standards Association, Washington, and the National Association of Securities Dealers, Washington.
The second decision limits the scope of recordkeeping requirements to transactions that actually result in sales. Insurers would not have to keep records on the suitability of recommendations made to customers who walk away without making purchases.
Michael Lovendusky, senior counsel with the American Council of Life Insurers, Washington, predicted failure to recognize IMSA in the model regulation would reduce IMSAs vitality.
But Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, called the IMSA compliance provision a “get-out-of-jail-free card,” and Kevin Hennosy, executive director of SpreadtheRisk.org, Kansas City, Mo., questioned how state regulators could give a private organization such as IMSA public authority without requiring public oversight of the organizations activities.
Discussion of the scope of the model regulation was just as emotional.
Mike Hessler, an Illinois regulator, said imposing recordkeeping requirements on all transactions would create a recordkeeping nightmare.
An all-encompassing recordkeeping requirement would also increase carriers exposure to liability lawsuits, Lovendusky said.
Setting a strict recordkeeping liability standard would give class-action attorneys “a slam dunk,” according to Scott Cipinko, executive director of the National Alliance of Life Companies, Rosemont, Ill.