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NAIC Adopts Suitability Regulation

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Roughly five years and innumerable drafts later a model that regulates suitability of annuity sales was adopted by the National Association of Insurance Commissioners here.

Acknowledging that the Senior Protection in Annuity Transactions model regulation was not perfect, Mike Pickens, NAIC president and Arkansas insurance commissioner, said the model still afforded considerable protections to seniors and recommended adoption.

State commissioners approved the regulation with a nearly unanimous vote. California voted not to adopt the model with no reason given, according to a department representative voting on the issue.

The model encompasses both fixed and variable annuities sold to senior citizens, a segment of the market that regulators say represents the group “most vulnerable” to unsuitable sales.

Amendments adopted on a closed regulator conference call just prior to the fall meeting reiterated that both companies and producers would be responsible 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 cover all consumers, Poolman said, “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 it could garner the support needed to be adopted, he explained.

The assurance followed a 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, why wouldnt they be good for all consumers, he asked.

Birnbaum also wondered 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 said 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, which Birnbaum said 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 they wanted.

The last minute revisions made the model better and to delay 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 said. To delay the vote further would make it more difficult for it to be introduced in legislatures for the 2004 season, according to Stewart.

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

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 [the NAIC] and leadership.”

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.

There are better ways to do this, but if a state needs such a model, ACLI could accept it, 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 that although there was “no evil intent,” the process of developing a model needs to be open.

Cipinko said he still holds the belief that suitability is not something that is needed because there are other tools to ensure compliance.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 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.