NAIC's Suitability Effort Seems To Be Edging Toward Consensus

“Congress is also focused on the issue. It wants to know when we are going to do something on suitability and where we are on the issue,” he adds.

The model would also retain the authority of state regulators by establishing provisions to limit private right of actions so that enforcement would be the responsibility of regulators and not the legal system, he adds.

It is quite possible that when the latest draft is released, this could be a breakthrough, says Linda Lanam, vice president and deputy general counsel with the American Council of Life Insurers, Washington.

But, what will be important in determining support is the language for a safe harbor for companies that sell variable products and are already in compliance with the NASD, she adds.

It is important, Lanam says, that there not be duplicative regulation of variable products.

The discussion suggests that both producers and insurers would be responsible for suitability but for different reasons, says Ron Panneton, senior counsel for law and state relations with the National Association of Insurance and Financial Advisors, Falls Church, Va.

Insurers would need a method to ascertain that producers had met a standard and producers would have to meet that standard, and that is encouraging, he adds.

The draft is “moving in a better direction,” says Scott Cipinko, executive director of the Life Insurers Council, Atlanta. For instance, he says LIC supports a private right of action and believes that all regulatory remedies should be exhausted first.

However, he also says it is important that there not be regulatory duplication. Additionally, he maintains that suitability be examined on a case by case basis rather than setting up a system that catches unsuitable sales.

A definition of recommendation, which is broad enough to capture most of the business being conducted, and which was in a draft released in February, is one that is worth keeping, says Kevin Hennosy, publisher of SpreadtheRisk.org, Kansas City, Mo. That definition needs to be broad enough to meet a marketplace that includes direct sales, he adds.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 2, 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.