NAIC Suitability Debate Called A Balance Of Need And Pragmatism

By

Discussions among insurance commissioners suggest that there is recognition of a need for sales suitability oversight, according to National Association of Insurance Commissioners President Terri Vaughan.

The merits of the Life Insurance and Annuities Suitability model act and regulation will be debated next month during the summer NAIC meeting prior to a decision on whether or not to advance them.

The issue has been hotly debated for two years and the NAIC hierarchy as well as a large number of commissioners are weighing in on the issue.

It is a “challenge” balancing this need with the possibility of advancing a model that would not be adopted in the states, she adds. “That would not be useful to the process,” Vaughan says.

However, the Iowa commissioner also notes that the suitability regulation that has been effective in her state since 1997 is “a good thing for Iowa consumers.”

Vaughan says that one misconception that surrounds the issue of suitability is that it is “the answer to life insurance sales practices. It is a tool, not the answer.”

Utah Commissioner Merwin Stewart, acknowledged that commissioners have been heavily lobbied by those opposed to the model and promised that the issue would receive an “open discussion” during the “A” committee meeting he chairs.

Stewart also spoke to the need for a balance. “We need to be careful and not be too prescriptive,” he says. Through judgment and integrity, it must be taught to “serve the customer in the best possible way. If we concentrate too much on rules, we will never achieve that.”

However, he said that rules are needed for “egregious things.”

Stewart says that any pressure on state regulators from federal agencies can be countered by noting the existing model regulations that currently exist. There are over five model regulations that address suitability in some way, he continued. For example, Stewart says that the Life Insurance and Annuities Replacement regulation is in place in 40 states.

Because of the divisiveness surrounding the suitability model draft, Stewart says it is his personal opinion that the current model probably will not pass.

Indeed, the American Council of Life Insurers, Washington; the National Association of Insurance and Financial Advisors, Falls Church, Va.; and Kevin Hennosy, a consumer advocate and executive director of SpreadtheRisk.org, Kansas City, Mo., all oppose the current model.

Michael Lovendusky, senior counsel with the ACLI, said that failure to adopt the model in states contradicts the NAIC’s current efforts to create uniformity.

It has not been proven that there is a need for suitability regulation, says NAIFA’s Ron Panneton, associate general counsel.

“It isn’t real suitability regulation,” says Hennosy who cites problems including exemptions for growth areas of the life insurance business.


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 20, 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.