Regulators trying to oversee the suitability of annuity sales no doubt understand the dilemma of the Dutch boy trying to plug the dike who stuck his finger in one hole only to see another leak spring.
Cracks, such as continued misrepresentation of annuity features and lack of disclosure of surrender schedules, continue to turn up in consumer complaints to insurance departments.
Indeed, details provided by regulators during the NAIC’s summer meeting were troubling, although not entirely surprising.
The latest crack, useless (or even worse, misleading) senior designations, will likely be plugged shortly with advancement of a proposed NAIC model. But regulators wearily note that those who want to deceive consumers will always find new and innovative ways to do so.
A structural change from a traditional captive system to an independent system is making it more difficult for companies to control the activities of independent channels such as regional broker-dealers and wirehouses, according to a presentation made to regulators. And, while companies can periodically review third-party activities, it is difficult, if not impossible, to require these independent outlets to comply with company suitability requirements, noted one of the presenters.
Indeed, statistics from LIMRA International indicate that the number of agents affiliated with companies declined to 160,917 in 2004 compared with 195,141 in 1998, while the number of independent agents increased to 155,050 in 2004, up from 118,685 in 1998.
An industry representative familiar with the issue says a wirehouse is not likely to willingly provide information about the sale of a product to its client to an insurer and allow that insurer to insinuate itself into the broker-dealer/client relationship.