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Life Health > Life Insurance

Exemptions To Suitability Reg Debated

By Jim Connolly

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NU Online News Service, Aug. 16, 5:56 p.m. – State insurance regulators who are drafting a controversial National Association of Insurance Commissioners document establishing life insurance sales suitability guidelines talked about worksite sales and credit life insurance today during a discussion of products that should be exempt from the suitability requirements.

Members of the NAIC suitability working group decided to exempt individual life insurance and annuity products sold to employees during worksite visits from the requirements of the working group’s draft model of “Life Insurance and Annuities Suitability Model Regulation.”

Regulators also exempted credit life insurance from the draft model, but that exemption is contingent upon confirmation that another NAIC working group that is addressing credit insurance issues examine suitability standards for credit life insurance.

Regulators ended up making a unanimous decision to exempt the worksite sale of individual life and annuity products from the draft standards after hearing from supporters and critics of a worksite sales exemption.

Industry representatives and some regulators suggested applying the draft standards to worksite sales of individual life and annuity products would kill worksite sales of the products by making the sales process too cumbersome.

Patricia Jackson, a senior counselor in the law division of Met Life, New York, said that to comply with the requirements of the model regulation, a company would have to do fact finding, a process that would take several hours. No employer is going to allow an employee to take several hours during a day to do this, she said.

Jackson pointed out that a worksite sale is a simple sale with no sales illustration. An employee determines whether they need the insurance and what amount of insurance they can afford, she added. No direct solicitation is made.

Carroll Fisher, Oklahoma insurance commissioner and Rosanne Mead, chair of the suitability working group, said that consumers in their states had not registered worksite sales as an area of abuse or concern.

Fisher questioned whether a model was needed at all but said that if regulators decided to develop one, then worksite products should not be included under its scope.

But consumer advocates funded by the NAIC said that worksite insurance should be included in the suitability model, and some questioned whether the possibility of damage of worksite sales should be considered a legitimate reason for exempting worksite sales from the standards.

Jack Yanosky, a regulator representing the Pennsylvania insurance department, asked whether solicitation might not exist in the world of worksite sales.

In the real world, he said, an agent might try to find an amount that an employee would agree to have deducted from a paycheck. If $5 a week was too high, an agent might see if $3 was acceptable, Yanosky said.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said including a product under the scope of a model does not mean that the product is a bad product. Inclusion simply means that any product sold should be suitable for the purchaser, Birnbaum said.

Worksite sales representatives already collect some information from interested employees, including limited underwriting information, salary and family status, Birnbaum noted.

Kevin Hennosy, executive director of Spread the Risk, Kansas City, Mo., told regulators the draft regulation is now so weak he would prefer to see it killed rather than adopted in its current form.

The draft would “place all the regulations on agents and none on companies,” and it exempts too many products from the standards it sets, Hennosy said.

The current draft regulation is “deceptive” because it creates the illusion that there are standards when, in fact, there are not any standards, Hennosy said.

Members of the suitability working group also heard from both sides on the proposed credit life exemption.

Deborah Goldberg, a representative with the Center for Community Change, Washington, said sellers of credit insurance have a “history of predatory lending and problems in the marketplace.” She said excluding the product from the model would send a message to consumers and low-income groups that the NAIC is not defending their interests.

Birnbaum pointed out that a number of companies have decided to stop selling the product. Citgroup Inc., New York, announced it would stop selling single premium credit insurance in July. (See: http://www.nunews.com/archives/lh_archive/2001/l07-09/l200128citigroup.asp) He called credit insurance a “poster child for suitability requirements.”

But William Burfeind, executive vice president of the Consumer Credit Insurance Association, Chicago, countered, saying credit insurance was not envisioned as a part of the model when work began.

Credit insurance is currently being looked at by another NAIC working group, Burfeind said.

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