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Regulation and Compliance > State Regulation

NAIC Promises Suitability Model Soon

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New York

With a big push from the leadership at the National Association of Insurance Commissioners, regulatory guideposts for the suitability of annuity sales to seniors could be in place by fall.

Discussions among regulators, insurers and producers during the summer NAIC meeting here suggested consensus on wording was within reach.

Final wording will be prepared in anticipation of voting the Senior Protection in Annuity Transactions model regulation out of the Life & Annuities “A” Committee in the next two weeks and fully adopting the model by the fall meeting in September, according to Utah Insurance Commissioner Merwin Stewart, who is the “A” Committee chairman.

The intention of NAIC leadership to bring nearly five years of debate to a close was made clear by Mike Pickens, NAIC president and Arkansas commissioner. Regulators all know of cases where seniors have been sold unsuitable products in their states, Pickens said, and “long overdue” action that “first and foremost protect(s) vulnerable seniors out there” would be undertaken.

“Congress wants to hear something from usIt is time to act,” he said. “It is time to act just as soon as we can.”

Rep. Michael Oxley, R-Ohio, and chairman of the House Committee on Financial Services, spoke to insurance commissioners at the meeting about what kind of strides state regulators were making in achieving regulatory efficiency.

Oxley told National Underwriter state regulators “have made progress but still have a long way to go.”

As detailed in the model, the purpose of the suitability regulation is to “establish standards and procedures for recommendations to senior consumers that result in a transaction involving annuity products so that the insurance needs and financial objectives of senior consumers at the time of the transaction are appropriately addressed.”

The model states “it shall not be construed that there is a private cause of action for a violation of this regulation.”

It applies to recommendations by an insurer or an insurance producer resulting “in a transaction or series of transactions involving a senior consumer on the purchase of an annuity that results in another transaction or series of insurance transactions.”

The latest effort to finalize broadly acceptable suitability standards started with a discussion of how an insurer would ensure its producers comply with suitability standards.

Wording proposed by the Wisconsin insurance department was discussed by Fred Nepple, a regulator with the department.

The Wisconsin language, Nepple said, would reserve the most severe penalty for failure of an insurer to take action after a commissioner had notified the company of a suitability violation.

Additionally, the Wisconsin language references use of guidance issued by the National Association of Securities Dealers and states that “a commissioner may not bring an enforcement action under this subsection for a matter that the NASD has adjudicated.”

The Wisconsin language is a “fundamental change” from an approach addressing measurement of good behavior to one of sales supervision regulation, said Linda Lanam, vice president and deputy general counsel with the American Council of Life Insurers, Washington. That change was one Lanam said the ACLI would be unable to support.

Instead, Lanam proposed that the section addressing the method for compliance with the regulation read: “an insurer shall establish and maintain a reasonable method to monitor that a recommendation made under the regulation comply with standards of this section and take corrective action where appropriate.”

The language in both the NAIC draft and the ACLI proposal goes on to state that an insurer may use a third party to perform the oversight function; shall make inquiry to “reasonably assure” that the third party is performing required duties; and, an insurer shall test this through, but not limited to, sampling, testing or an audit.

The idea of “corrective action” being taken was one Ron Panneton, senior counsel for law and state relations with the National Association of Insurance and Financial Advisors, Falls Church, Va., said was important to include in the model.

North Dakota Insurance Commissioner Jim Poolman said he thought the concept was included and added that the whole purpose of the regulation was to give regulators the tool to make sure that was the case.

Poolman also responded to Kevin Hennosy, a NAIC-funded consumer representative and publisher of, Kansas City, Mo., stating he believed the model covered all distribution systems.

The model also includes a drafting note stating that granting a safe harbor is intended when the NASD has reviewed a transaction and found it complies with NASD conduct rules.

That drafting note was developed because of insurers concerns that they would be subject to duplicative regulation.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 30, 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.


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