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New NAIC Suitability Model Draws Mixed Reactions

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NU Online News Service, Feb. 24, 4:33 p.m. – Representatives for the American Council of Life Insurers, Washington, and, Kansas City, Mo., a major insurance consumer Web site, are expressing mixed emotions about the new suitability draft that was released Friday by the National Association of Insurance Commissioners, Kansas City, Mo.

Michael Lovendusky, ACLI’s senior counsel, says that insurers are still reviewing the draft but that the draft appears to include “the good, the bad, and the ugly.”

Kevin Hennosy, publisher of, says he is glad that regulators made efforts in the draft to go after violations in the senior market, but that he wishes regulators were doing more to protect the larger population and make insurers share responsibility for suitability with producers.

The draft, called the Senior Protection in Annuity Transactions model regulation, provides a model regulation for states that want to protect consumers from buying life insurance and annuity products that fail to suit their needs.

An NAIC working group developed the new suitability draft after an earlier suitability draft, called the Life Insurance and Annuities Suitability model, ran into opposition from insurers, producers, consumer advocates and some regulators.

Some critics complained that the earlier draft was too broad, and others said it put too much of the responsibility for ensuring suitability on the shoulders of producers.

The new draft focuses more on ensuring uniformity and protecting unusually vulnerable consumers, such as senior citizens, officials say.

The NAIC will give members of the public a chance to talk about the draft in March, in Atlanta, at the NAIC spring meeting.

At the ACLI, Lovendusky says that the good part of the new draft is the focus on the senior market, the bad part is the inclusion of variable annuities, and the ugly part is the NAIC’s goal of adopting the model at its summer meeting in June.

Focusing on the senior market is good because the senior market is the heart of the suitability problem, Lovendusky says.

But Lovendusky argues that including variable annuities is bad, because variable annuities are “already heavily regulated at the federal level,” and that the quick time table for adoption is ugly because the only meeting before the summer meeting, the spring meeting, will be an organizational meeting.

Lovendusky would also like to someone do a cost-benefit analysis of the model, and he questions why the NAIC chose age 65 as the age when a consumer becomes a “senior” without a discussion of the issue.

At, Hennosy says he wishes the draft would emphasize that the insurer and producer are really the same entity because, he contends, the producer is representing the insurer when a sale occurs.

“There is no reason that there should be a wall between the insurer and producer,” Hennosy says.

Hennosy also questions a provision exempting direct-response sales from the model regulation.

Exempting direct-response sales is bad because the direct-response channel is a huge channel, and a channel that older consumers often use, Hennosy says.

Exempting the direct-response market could encourage insurers to favor this kind of distribution and to “get rid of the agency force,” Hennosy warns.


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