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NAIC Adopts Annuity Suitability Model

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NU Online News Service, Sept. 15, 2003, 6:02 p.m. EDT — Chicago

The National Association of Insurance Commissioners, Kansas City, Mo., has concluded five years of work on suitability by adopting the Senior Protection in Annuity Transactions model regulation.

The model covers sale of fixed and variable annuities to senior citizens. Regulators say senior citizens are the consumers “most vulnerable” to unsuitable sales.

The model is not perfect, but it affords considerable protection to seniors, NAIC President Mike Pickens told state commissioners before the vote.

State commissioners heard Pickens’ message and supported the model with a nearly unanimous vote. California voted not to adopt the model with no reason given, according to a representative for the department.

Amendments adopted on a closed regulator conference call just before the fall meeting emphasized that both companies and producers would be responsible for suitability and went on to specify that all producers, including captive agents and independent producers, would be responsible for the suitable sale of annuities to senior citizens. The amendments were recommended by the American Council of Life Insurers, Washington.

North Dakota Insurance Commissioner Jim Poolman, said the current model has a “realistic chance of getting adopted in the states.”

Responding to criticism that the model should include all consumers, Poolman said that “if it [the model regulation] works, it can always be amended later if other problems need to be addressed.” The model needed to be tailored so that it could garner the support needed to be adopted, he said.

The assurance followed criticism made by Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas. Birnbaum asked regulators why suitable sales guidelines focused on senior citizens. If suitable sales are good for seniors, he asked, why wouldn’t they be good for all consumers?

Birnbaum also asked why the scope of the model was limited to annuities.

All but one consumer representative signed a letter urging that the model not be adopted. The letter says the model “has been watered down to the point that there are no meaningful consumer protections in the model.”

The consumer advocates also criticized the process involved in final amendments that led to a statement saying that all types of producers should be included under the auspices of the model.

The criticism centered on the closed conference call, a call Birnbaum says allowed for “negotiations with the industry and the industry alone on industry concerns.”

Poolman said it was unfortunate that consumer groups would not support the model because they did not get everything that they wanted.

The last-minute revisions made the model better, and delaying the model further would have hurt people, said Merwin Stewart, Utah commissioner and chair of the Life & Annuities “A” Task Force, where the model received substantial work.

The current model makes all parties involved responsible for suitable sales, he says. To delay the vote further would make it more difficult for the model to be introduced in legislatures for the 2004 season, according to Stewart.

“I still support the overall product,” said Kevin Hennosy, a consumer advocate and publisher of, Kansas City, Mo. “It is the best that we can get. It is a way to move forward.”

However, Hennosy criticized the process, noting that “there were actions taken after most parties thought that it [the draft model] was completed. “

“That is where we lose trust in this organization and leadership,” Hennosy said.

The amendments agreed to before the fall meeting make it possible to accept the model, said Linda Lanam, ACLI vice president-annuities. If states want to do something with a model that incorporates those amendments, then ACLI would accept that, she added.

Scott Cipinko, executive director of the Life Insurers Council, Atlanta, said regulators need to ensure that the process of developing a model continues to have integrity. He said he still believes that a suitability model is not needed because there are other tools to ensure compliance.