New Suitability Alternative Being Circulated Among Insurers

By

A new proposal to establish suitability guidelines is being circulated among life insurance and annuity companies and could be submitted as an alternative to a draft model on suitability that regulators are planning to vote on.

A vote on the Life Insurance & Annuities Suitability model act and model regulation at the “A” committee is scheduled to take place during the summer meeting of the National Association of Insurance Commissioners this June in Philadelphia.

The controversial model is being opposed by insurers, producers and consumer representatives.

NAIC President Terri Vaughan has said it is the intent of regulators to vote on a suitability model and unless an alternate was proposed, it would be the present NAIC model.

The alternative model developed by Allianz Life Insurance Company of North America in Minneapolis, will be submitted to the NAIC for consideration if it receives broad support, according to Hugh Alexander of the Alexander law firm, Denver.

Initial reaction is “pretty favorable,” he says. The current draft of the alternative model calls for insurance producers who “sell, solicit or negotiate individual fixed life insurance policies or individual annuity contracts” to make “reasonable efforts to determine the consumers insurance objectives, insurance needs and financial objections.”

Alexander says the alternative does not seek to define “reasonable.”

The alternative model also states that “an insurance producer shall not recommend to any consumer the purchase of any individual fixed life insurance policy or any individual annuity contract or any rider, endorsement or amendment thereto, without reasonable grounds to believe that the transaction or recommendation is not unsuitable for the consumer based upon reasonable inquiry concerning the consumers insurance objectives, financial situation and needs, age and other relevant information known by the producer.”

Of companies, it states that it is “the duty of the insurer to adopt procedures reasonably designed to monitor insurance transactions effectuated by producers.”

The current draft, according to Alexander, would make the agent responsible at the point of sale and make the company responsible for periodic audits of the effectiveness of systems to monitor compliance.

Ron Panneton, associate general counsel with the National Association of Insurance and Financial Advisors, Falls Church, Va., says the new proposal still does not address issues that have been discussed over the last two years.

What needs to be looked at again is whether there is the need for a suitability model, he says. There is no support in the industry for a model, Panneton continues.

Even if a model is advanced, “the lack of support throughout the industry suggests that few states would consider it and in those that did, it would be subject to amendments,” he adds. This likelihood, he says, “flies in the face of the laudable goal of uniformity.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 29, 2002. Copyright 2002 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.