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December 04, 2005 at 02:00 PM
In this post-election period, it is appropriate, but coincidental, that the subject of this article is the need for indexed insurance industry unity and consensus.
Further to the political note is this famous remark by Benjamin Franklin, made at the signing of the Declaration of Independence: “We must all hang together, or assuredly we shall all hang separately.”
The need for industry unity and consensus arises, in part, because regulators are on a path to reach unity and consensus on regulation.
As has been the subject of numerous regulatory actions and media reports, indexed insurance products are under regulatory scrutiny by both federal and state securities and insurance regulators. In the spirit of consensus, giving even the most hostile of scrutinizers the benefit of the doubt, each is motivated by the obligation to fulfill its regulatory duties as circumstances demand.
The proliferation of indexed product designs and increasing sales are sufficient rationales for the current regulatory diligence.
As the result of the roundtable on annuity products, sponsored by the National Association of Securities Dealers and the Minnesota Department of Commerce on May 5, 2006, regulators appear to be working toward a consensus on who should–and how to–regulate indexed products.
Indexed product manufacturers and producers need to do the same.
Industry unity and consensus is a must now because the current enhanced regulatory scrutiny is not going to go away as it did in years past. This is for the same reasons that initiated the current scrutiny: the proliferation of indexed product designs, increasing sales, and the perceived need for regulators to fulfill their regulatory obligations.
From all reports, this scrutiny is not the result of customer complaints, which apparently have been few and far between.
Moreover, now is not the first time that regulators felt obliged to take specific and public action.
The most recent occasion, other than NASD’s NTM 05-50 in August 2005, was prior to the now fading mutual fund late-trading/market-timing debacle that surfaced in late 2003. Federal securities regulators were known then to be making indexed product securities law status consideration a priority after the learning period that followed the review of the responses to the Securities and Exchange Commission’s Concept Release in 1997. The drain on SEC staff resources resulting from the mutual fund morass probably was the indexed products’ reprieve.
Manufacturers and producers cannot assume that another unrelated scandal will take them off the federal or state radar screens this time around.
As many know, not only state insurance departments but state securities administrators are very active in this area.
In fact, the state securities administrators’ focus, as much as NASD’s activities, may be sufficient reason for manufacturers and producers to welcome federal securities regulators’ review–and to cooperate amongst themselves. Although the SEC does not dictate state determinations, its pronouncements and standards are not ignored by other entities, including state agencies and the courts.
The remainder of this article requires a “disclaimer.” The author has been and remains a promoter and defender of indexed products since they first appeared in the market in 1995. The following criticisms are made in those same interests.
