Some Refreshing Sentiments On The Subject Of Suitability

Judging from the comments of Utah Insurance Commissioner Merwin Stewart, a fresh breeze of reasonableness and rationality seems to be blowing through the regulatory community on the subject of suitability.

Speaking to National Underwriter after a regulators-only get-together earlier this month, Stewart articulated sentiments that we cannot remember hearing before from a regulator on this issue.

As Jim Connolly reported in last weeks issue, “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.”

In addition, Stewart drew a distinction between “perfectly suitable” and “reasonably suitable.” A product should be suitable when sold, he said, 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.

Well. Isnt that a welcome and refreshing stance?

Even more enlightened was Stewarts comment that “the problem we [regulators] 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.”

We are still not fully convinced that suitability is a problem in need of more of a regulatory fix than what is already laid down in the law.

It seems likely, however, that the National Association of Insurance Commissioners is going to insist on protecting its flank by passing some kind of suitability model. If thats the case, then it certainly is preferable that the model be infused with the thinking Commissioner Stewart expressed rather than the vague, unrealistic and overly punitive approach that has characterized the suitability debate up to now.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 25, 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.