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Suitability: Recipe For Confusion

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Several days ago one of our neighbors held a meeting in their home. Our street was lined on both sides with vehicles that brought the attendees to the meeting. All of the vehicles were sport utility vehicles (SUVs), so I presumed the meeting was for some explorer or adventure group. But when the meeting broke up and the participants departed, they were all women. I learned the purpose of the meeting was to plan a Halloween party for kids in our end of town rather than a tour into a wilderness area.

Now, one just naturally has to question the “suitability” of all those SUVs. My son lives in the high Sierras where they measure snow in feet rather than inches, and a 4-wheel drive SUV is not only “suitable,” but essential. But we dont have snow in Phoenix, we dont even have mud, and I doubt that many, if any, of the SUVs that lined our street have ever seen a dirt road.

SUVs get lower gas mileage than most regular sedans, they ride harder and are more difficult to get into. One could reasonably argue that by most criteria they are not the most suitable vehicles for family transportation. But the fact is the public loves them and is buying them by the millions. Personal choice and other considerations are clearly overriding optimum suitability in making such buying decisions.

It is a fact that consumers often bring a strong bias into a sales situation. Persuasion or education seldom has much impact upon the ultimate decision in such cases. On a number of occasions, I have been told by a prospect or client, “This is what I want and if you are not willing to write it up, I will find someone who will.”

This kind of bias can often stay with people throughout their life. I remember a conversation I had a few years back with the CEO of a small life company. He told me that all of his life he had fervently believed term insurance was the only life product to buy, but now that he was approaching retirement, he was starting to realize he had been wrong. At a time when death was more likely, he could no longer afford the premiums and yet he still needed the coverage.

In this case, he had no one to blame but himself, but in another setting, with an agent involved, it would not be too difficult to imagine a policyholder denying his bias and seeking recourse from an agent or company under a suitability regulation.

There are many other nuances in the sales process that impinge upon the suitability of non-registered life insurance products. A life insurance purchase cannot be judged based upon a snapshot of the prospects current situation. Rather, it is more like a moving picture being played out over time and with a constantly changing scenario.

No one can reasonably be held accountable for the unforeseen, or for dreams that never materialize. Marriages fall part, jobs evaporate, partnerships end and countless other factors may occur to affect the so-called “suitability” of any life product as time goes by.

There seems to be a growing level of opinion that making reasonable inquiry into a persons objectives and needs will somehow guarantee that the prospect will be able to select a more suitable policy. Obtaining accurate confidential financial information from a prospect is very difficult and can even be troublesome with an established client.

I recall an instance where one of my best clientsand one whose situation I thought I thoroughly understoodsurprised me. His son had died in a tragic accident and he could not bring himself to make the final arrangements alone. He asked me to help him select a gravesite and other arrangements. We selected a cemetery and gravesite, at which point he said, “We had better get two, I have a retarded daughter in an institution in California and she cant last much longer.” In all our dealings, he had never disclosed this to meand yet, it was a very material factor in determining his insurance needs.

Just because an agent makes “reasonable” inquiry regarding a prospects situation does not guarantee the accuracy or completeness of the response. Moreover, I am not aware that anyone has defined what is “reasonable.” I suspect that the vast majority of agents already probe more deeply into peoples finances, hopes and dreams than is revealed on the sketchy forms sent out annually by securities brokers to satisfy their suitability obligations.

In reviewing the provisions of the rules already adopted by a few states on suitability, they all derive authority from existing statutes governing such things as fraud, misrepresentations, unfair trade practices and replacements. Enough already!! There are adequate laws presently to deal with this problem and dumping a new load of regulations on the marketplace will only add to the confusion.

There is an important axiom we should keep in mind: “A confused buyer is a non-buyer.” Regulation is vital to a workable marketplace, but to the extent that it discourages sales, it renders a great disservice to people who want and need important coverage.

One final note, again the industry appears to be divided on this issue, with the companies and the field holding different views on where the liability rests when the question of suitability arises. History has always demonstrated that when we are divided we get trounced. Fact is, if a legitimate case of an unsuitable sale arises, you can bet your bottom dollar everyone involved is going to get nailed.

Suitability in the sale of non-registered products is a recipe for confusion and we all should be united in opposition to it.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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