Regulators Huddle Brings Promise Of A New Attempt On Suitability Standards
The concepts for suitability standards that were discussed during a regulators huddle earlier this month in Chicago, are “specific but reasonable,” according to Utah Insurance Commissioner Merwin Stewart.
Stewart, who is chair of the Life & Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo., and other regulators met Nov. 7-8 to work out a solution to the issue of suitable sales of life insurance products.
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The ideas discussed during the meeting will be opened up to insurance companies and producers for comment, he says. They are specific enough to cover the issue but flexible enough to let companies do it their own way, he adds.
The concepts could work well with a software program, either one already on the market or one developed by an insurer, Stewart explains.
If all goes well, there could be suitability standards to move through the NAIC by the spring meeting in March 2003, according to Stewart. The work that has been done to date on the issue helped during the November gathering, he says.
Among the possible solutions that had been discussed is a suitability regulation similar to one that is in place in Iowa.
Another possibility that has “caught the interest” of regulators is a software program that would flag potential suitability problems, Stewart says.
What is needed, he explains, is “an assurance that customers are being watched over and sold products that are appropriate.”
Stewart says it is his feeling that if a company implements good standards that are visible to regulators, keeps customers informed and offers assurances that a good job is being done, then regulators needs will be satisfied.
There is a distinction between “perfectly suitable” and “reasonably suitable,” according to Stewart. A product should be suitable when sold. But regulators do not want to create a liability for a company or insurer by implementing a standard that does not account for changes in customers circumstances.
Modeling responsibility for suitability on fiduciary standards required under ERISA could also be studied, Stewart says. But to enforce such a standard, he adds, a mechanism would have to be put in place.
As regulators, he continues, “the problem we face is that to the extent we are overly prescriptive, it sets a company up for legal problems. It puts the advantage in the hands of the trial lawyers.”