NAIC Projects On Suitability And Senior Designations Get Green Light

But recent activity convinced regulators in states such as Florida, Iowa, New York and Wisconsin to charge the Life & Annuities “A” Committee with looking into the possibility of creating a new model that would be more comprehensive and cover new problems that regulators see surfacing such as the misuse of senior designations by producers.

During the call, Kim Shaul representing Wisconsin, started the discussion by telling regulators what kinds of problems are surfacing in her state. She said the state has set up an Annuities Suitability Advisory Committee and has found that older adults do appear to be the focus of annuity sales with 76% of new annuities sold to those 65 years of age and older. Among the problems Shaul noted were: inadequate disclosure, not being told the length of a surrender charge or not understanding the impact of those charges, stressing the initial interest rate in discussions although that is not the guaranteed rate, and not enough discussion about a free-look period.

Jim Mumford, an Iowa regulator, detailed some of the tools his state uses to ensure suitability, including the NAIC Suitability model, a model disclosure regulation, agent training requirements, as well as a collaborative effort on indexed annuities with the ACLI and NAIC-funded consumer advocate Brenda Cude.

One of the issues that arose was whether and how to incorporate guidelines that already exist, such as guidelines from FINRA, Washington.

Mary Beth Senkiewicz, a Florida regulator, said the issue of suitable sales to seniors is a significant one in her state. She said there is evidence that some producers are not properly selling these products, although she said she did not want to use a broad brush in describing the issue. Senkiewicz reviewed some of the details in a new Florida law (CS-4CS-4SB2082) which among other points makes twisting and churning a misdemeanor in the first degree, and willfully submitting a fraudulent signature a felony in the 3rd degree. The effective date for the new law will be Jan. 1, 2009 or whenever the final rule is adopted.

In Alaska, according to regulator Katie Campbell, the state put in a provision to the nonforfeiture law where a company had to use the later of a 10-year period or age 70 in order to prevent extremely long surrender schedules for those contracts issued to older seniors. Utah has a similar law according to Utah regulator Tomasz Serbinowski.

Riva Kinstlick, vice president-external affairs with Prudential, Newark, N.J., said one major industry change that may be affecting the suitability of sales is the growth of producers who are independent third party agents who are not bound by the requirements of one carrier.