Suitability Regulation Takes Another Turn

The long-running saga of crafting a model law for regulating the suitability of insurance product sales has taken another turn–and this time we believe it is a turn for the better.

Putting aside the question of whether a suitability model is necessary in the first place, the most recent response of the National Association of Insurance Commissioners to this situation shows appropriate focus.

Instead of tackling suitability with the regulatory equivalent of Big Bertha, as it has in the past, the NAIC has narrowed the scope of the current draft to suitability of annuity sales to seniors, or those consumers over age 65.

The newly drafted Senior Protection in Annuity Transactions model law and regulation focuses on protecting a segment of the population that regulators, rightly we believe, say is more vulnerable than others to unsavory sales tactics.

It also resolves the messy question of who is responsible for a suitable sale–producer or company–by declaring, in effect, that both are and that responsibility in a particular case will be determined by looking at the “facts and circumstances” of the case, as Utah Insurance Commissioner Merwin Stewart explained.

This seems reasonable to us, particularly in view of previous drafts that some saw as placing the entire responsibility on the shoulders of producers, while letting the companies off the hook. That simply made no sense in the real world.

First industry reactions to the new draft were decidedly more positive than responses to past drafts have been. But even so, reactions were mixed. The comment of Michael Lovendusky, senior counsel with the American Council of Life Insurers, that at first glance the draft seemed a case of “the good, the bad and the ugly,” pretty much sums up initial industry reaction.

Nonetheless, we believe this draft is a much better starting point for a suitability regulation and we commend those regulators who listened to the various constituencies who would be affected and then went back to the drawing board one more time.


Reproduced from National Underwriter Edition, March 10, 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.