NAICs Suitability Effort Seems To Be Edging Toward Consensus
Tentative optimism is being expressed that a recent roll-up-your-sleeves work session will result in a sales suitability model regulation that will enjoy broad support.
At press time, a new draft of the suitability model–the Senior Protection in Annuity Transactions Model Act and Regulation–from the National Association of Insurance Commissioners, Kansas City, Mo., was being readied.
The current direction of the project reflects the disclosure elements of National Association of Securities Dealers requirements but also the need for regulators to have more flexibility if a product is unsuitable, says Utah Insurance Commissioner Merwin Stewart, who is heading up the NAIC effort.
For instance, Stewart says there are cases when a consumer will sign off on disclosure because there is trust of an advisor or failure to follow the math and then later it turns out that the product is unsuitable.
The current direction would be to ensure that both insurance and securities regulators have jurisdiction over their respective areas of regulation for variable products, Stewart says.
NASD Notice 99-35 enumerates four points including: gathering information about a client; discussing all relevant facts with a client; making sure information submitted by a client is complete; and, a review to make sure a variable contract is suitable for a client. See http://www.nasdr.com/pdf-text/9935ntm.pdf.
Mike Pickens, Arkansas insurance commissioner and NAIC president, says the suitability model will continue to focus on senior citizens and apply to both fixed and variable annuities.
This issue has been around for four to five years and “it is time to come up with a regulation and vote on something,” he adds. Regulators are hoping to fully adopt a model by the fall NAIC meeting in September at the latest, Pickens says.
All states can point to instances where seniors were sold products inappropriately, he says. “There is a particularly vulnerable class of people,” he continues.