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Suitability Continues To Stir Debate

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Three days before a vote was scheduled to be taken by regulators, last minute discussions hammered out compromise language for a model regulation on suitable sales of annuities to senior citizens.

But final changes to the proposed regulation are still raising concerns over whether insurers and consumer advocates should be left out of a conversation on a draft shortly before it is considered for adoption.

The Senior Protection in Annuity Transactions model regulation will be reviewed and possibly adopted by the National Association of Insurance Commissioners, Kansas City, Mo., at its fall meeting this week. It has been under consideration in various forms for about five years.

The discussions involved regulators and the American Council of Life Insurers, Washington.

On Sept. 11, compromise language that ACLI says it would find “acceptable” was issued by the NAIC. If the new language is included in a model that is adopted, ACLI would not oppose adoption, according to a note from Linda Lanam, ACLI vice president, annuities.

The new language states that an insurer shall either assure that a system needs to supervise recommendations reasonably designed to achieve compliance with this regulation or establish or maintain such a system.

It also states that a general agent or independent agency has to adopt an insurers system to supervise recommendations of its insurance producers or establish and maintain its own system.

The changes follow a Sept. 5 draft released after a closed meeting of NAICs executive committee, one of the bodies that could vote on Sept. 14.

Interested parties maintain that the lack of time to review changes underscores the need for decisions to be conducted in open session.

At press time, NAIC released a statement saying the committee had decided to make technical changes after considering whether to take action on more substantive changes. Mike Pickens, president of the NAIC and Arkansas commissioner, was out of the country and unavailable for comment.

Conceptual issues raised by the ACLI include the need to include variable annuities in a model that originally focused on fixed annuities as well as a requirement that insurers create “a system to supervise” the recommendations of producers. The letter, written prior to the newest language, states that if VAs come under the model, then it is important broker-dealers be included in the model since VAs are distributed by their registered reps.

Lanam says the ACLI accepts for purposes of this model that VAs are going to be included under its scope. However, it is important that broker-dealers have a system in place to regulate these products, she adds.

So, for fixed annuities, it would be important that the model make sure broker-dealers either establish their own system or an insurers system be used, Lanam continues.

In this way, all parties will be responsible for how a product is sold, she adds.

If the issues had been discussed in an open meeting, according to Lanam, it would have given interested parties a sense of what regulators were thinking when they made a decision. That thought process would have been helpful, she adds.

“We are still not going to support it,” says Scott Cipinko, executive director of the Life Insurers Council, Atlanta. With the increase in regulatory requirements, many of LICs small companies could be put out of business, he says.

Changes should have been done in public because interested parties could be put at a disadvantage of having to counter an issue that already has been discussed–in effect, playing catchup, Cipinko explains. It also violates due process, he adds.

Ron Panneton, senior counsel for law and state relations with the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFA neither supports or opposes the model as it currently stands. The most important thing is that commissioners have authority to take action where necessary, he says.

“I still support it [the draft] to the extent that I know what is in it,” says Kevin Hennosy, publisher of, Kansas City, Mo., of the earlier draft. At press time, Hennosy could not be reached for comment on the latest changes to the draft.

It is important that the model continues to put responsibility on all parties in order to avoid the “blame game” where one constituency points a finger at another for an inappropriate sale, he adds.

Hennosy also maintains that the executive committee call should have been open. “I think it stinks,” he says. At a time when regulators are trying to convince Congress that they can regulate insurance effectively at the state level, it does not help their cause to have closed meetings, he asserts.

Toward that end, both the National Conference of Insurance Legislators, Albany, N.Y., and NAIC are addressing issues such as market conduct reform.

A public hearing held by NCOIL was scheduled for Sept. 12 to discuss a market conduct model law that the organization developed late last month. Among those scheduled to testify include all the major trade groups in the life insurance, property-casualty and health industries.

Additionally, consumer representatives are slated to discuss the model.

Joel Ario, NAIC secretary treasurer and Oregon administrator of insurance, is also scheduled to speak.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 15, 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.