Close Close

Life Health > Life Insurance

Regulators' Huddle Brings Promise Of A New Attempt On Suitability Standards

Your article was successfully shared with the contacts you provided.

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.

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.”

The issue of suitability continues to be questioned by life insurance trade groups.

The American Council of Life Insurers, Washington, still wants “a clear idea of what the problem is,” says Michael Lovendusky, ACLI senior counsel.

Scott Cipinko, executive director of the Life Insurers Council, Atlanta, says that a reasonable approach would be to take a look at existing models and decide what work still needs to be done.

“It is impossible to define what suitability is,” he says. In fact, he continues, “It is a bad idea.”

If problems exist, he says, “lets hear about the parade of terribles.”

Speaking about election results, Ron Panneton, associate general counsel of the National Association of Insurance and Financial Advisors, Falls Church, Va., says that a large turnover among insurance regulators will offer the industry an opportunity to educate regulators on issues such as suitability in 2003.

Those interested in weighing in on suitability also focused on what is going on in individual states.

For example, in Maryland, a public comment period on a proposed suitability regulation, COMAR 31.09.10 Suitability of Life Insurance and Annuities, ended on Nov. 12.

The proposed regulation places responsibility on both insurers and producers for suitable life insurance sales.

A suitable sale would be determined by looking at both required and relevant information. Required information would include items such as source and amount of income, while relevant information would include information that is necessary to make a recommendation.

A suitable sale would be defined as a recommendation that meets a consumers insurance needs and objectives.

Among the duties of an insurer would be to adopt guidelines for suitable sales and use a system to detect sales that did not meet this guideline.

Compliance with the regulation would be based on information gathered at the time of the recommendation, not subsequent to the recommendation.

Under the proposed regulation, an insurer or producer would not be responsible for a suitable recommendation if a consumer did not provide required or relevant information, selected a transaction that was not recommended, or failed to provide complete and accurate information requested.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 18, 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.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.