NAIC Ready To Release A New Suitability Model

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A new working draft to address the suitable sale of products is ready for public exposure and comment, says Utah Insurance Commissioner Merwin Stewart, who is spearheading the effort for the National Association of Insurance Commissioners.

The new draft, which will be released in the next few days, according to Stewart, is a model act and model regulation that focuses on suitability of sales to senior citizens who are “more vulnerable” to unsuitable sales.

The decision that the draft was ready for release was made during a regulators call on Feb. 20. The new model takes a more narrow approach than the broader approach taken in the development of a previous model developed by the NAIC.

That version of the suitability model, the Life Insurance and Annuities Suitability model act and regulation, was opposed by insurers, producers, consumer advocates and some regulators. Consequently, regulators at the NAIC began work on a new document.

Uniformity is one of the goals the new model is striving for, Stewart told National Underwriter.

“We have a good talking document,” he says. That talking will start when the public has the opportunity to discuss the new draft during the spring meeting of the NAIC in Atlanta next month.

Both insurers and producers are held responsible for the suitable sales of products in the new draft, Stewart says. Responsibility is determined by looking at the “facts and circumstances” in each case, he adds.

The issue of responsibility was a major point of contention during the development of the last draft of a suitability model. Producers had said that wording in the previous draft would have held them accountable for suitability and not made insurers responsible. Insurers had contended that that was not the case.

Software that would flag unsuitable sales is not a part of the model, Stewart says. However, he notes that if a company wants to use such software it is currently available in the marketplace.

Stewart says that if a company does not have the confidence that it can meet suitability standards, then it should consider such a tool. The NAIC will not make any specific suggestions or recommendations on software, he stresses.

The goal of the new model regulation and act, according to Stewart, is not to set up a best practices approach, but, rather to “set up minimum standards and requirements on them [the standards] to be assured that standards are met.”


Reproduced from National Underwriter Edition, February 24, 2003. Copyright 2003 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.