Regulators heard a number of new ideas and suggestions during a discussion of the first draft of a model that focuses on suitable sales of annuities to senior citizens.
The Senior Protection in Annuity Transactions model act and regulation is the second attempt by regulators at the National Association of Insurance Commissioners, Kansas City, Mo., to create guidelines for suitable sales of annuities.
Although some of the discussion revisited long debated issues such as the responsibility of insurers and producers, a new proposal was introduced by the Life Insurers Council, Atlanta.
The proposal as well as some other suggestions could be incorporated in a second version of the draft for discussion before the NAICs June meeting.
The proposal recommends using an existing NAIC Annuity Buyers Guide and modifying two sections so that they actually could be removed from the guide, filled out and then become part of the consumers file.
Those sections are under the headings, How do I know if a fixed deferred annuity is right for me and What questions should I ask my agent or company, according to a plan presented by Scott Cipinko, LIC executive director, and Hugh Alexander of Alexander Law Firm, Denver.
Since most insurers currently use the Buyers Guide, there will be little additional expense in creating a tear-out section that will be used to capture the consumers information and disclosure of product information, the LIC proposal states.
This approach, the proposal continues, would allow for regulators “to determine if the sale was not unsuitable at the time that the sale occurred and not require a statute to be passed in order to implement the process.” However, states that have not passed the Annuity Disclosure Model Regulation would need to do so, the proposal adds.
More generally, regulators were advised that if they focus on what needs to be done, then their job of finalizing a model act and regulation would be easier.
After listening to the debate over suitability for several years, Birny Birnbaum, executive director with the Center for Economic Justice, Austin, Texas, said he feels the first step regulators need to take is to identify problems in the marketplace. “What is happening? What is it that regulators are concerned about?” he asked.
The next step, Birnbaum continued, is to determine why regulators are currently unable to address the issue of suitability. “Is it because they do not have the statutory authority or are there other reasons?” If regulators can establish these points, then there will be a clear focus on what needs to be done with suitability, he explained.
If regulators cannot answer these questions, he cautioned that “there will be another two years of discussion and argument, like there was in the past.
“Where are the holes in regulatory authority needed to address those problems?” Birnbaum asked.
If, he continued, regulators do decide to go ahead with regulation, it should say that you cannot make an unsuitable recommendation rather than say a producer must make a suitable recommendation. The reason, he explained, is that it is easier to implement a regulation that states what is unsuitable rather than one that addresses what is suitable.
Birnbaum added that he does not believe any suitability problems are strictly the result of “bad apples” who are producers. Rather, it is also a result of “some of the problems of structure of the products and marketing schemes by insurers.”