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Commissioners Tackle Suitability, Replacements

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Regulators talked here about updating annuity consumer protection rules.

State commissioners and others attending the winter meeting of the National Association of Insurance Commissioners, Kansas City, Mo., packed a session of the Suitability of Annuity Sales Working Group on reworking the existing suitability model.

The term “suitability” covers efforts to ensure that an annuity or other product sold to a consumer is appropriate for that consumer.

Kelly Ireland, counsel for insurance regulation at the American Council of Life Insurers, Washington, noted that 38 states already have suitability regulations on the books.

The NAIC should change the model only when necessary, and “any changes need to be uniform guidance and not undo all the work that has been done to date,” Ireland said.

Ireland also asked that the language in a draft revision be modified to avoid implying that all insurers have been using inappropriate sales practices.

Joe Musgrove, an Arkansas regulator, said the NAIC has to go back and look at the suitability model.

There have been “very poor results,” Musgrove said.

“The monitoring of sales has not gone well under the existing model,” agreed Mary Beth Senkewicz, a Florida deputy insurance commissioner.

Suitability session participants talked about whether a revised model should require insurers to handle agent training or permit them to delegate the responsibility and monitor the training providers.

The National Association for Fixed Annuities, Milwaukee, supports agent training requirements, but one complication is that there are more than 6,000 types of fixed annuities, according to NAFA Executive Director Kim O’Brien.

Later, at a session of the NAIC’s Annuity Disclosure Working Group, Rosanne Mead, an Iowa assistant insurance commissioner, said she believes that the names of some annuity products, such as CD annuities and IRA annuities, are misleading.

Those names may mislead consumers into believing that the products offer guarantees that the products do not offer, Mead said.

NAIC meeting attendees also talked about illustrations, and an annuity disclosure pilot backed by the ACLI.

Iowa began using the template in February, according to Jim Mumford, an Iowa regulator.

The Iowa program allows use of the template to satisfy annuity disclosure requirements.

Ohio has agreed to begin using a template in March 2009, Ireland says.

The Ohio program will allow either the use of the Iowa template or a revised template incorporating minor terminology and disclosure changes reflecting the provisions of FINRA Rule 2821, Ireland said.

In January 2009, a survey of companies, producers and new contract holders will measure how the Iowa disclosure pilot is working, Ireland said.

In addition, the ACLI will develop a paper that can be a starting point for discussions about how to handle illustrations for fixed deferred annuities, Ireland said.

Regulators at the NAIC meeting also discussed concerns about exaggerated financial worries leading to unnecessary replacements of life insurance policies and annuities.

Iowa has issued a bulletin about economy-related replacements but has not received complaints about the issue, said Iowa Commissioner Susan Voss.

Tom Hampton, the District of Columbia commissioner, said his department has received a couple of complaints about replacements of policies issued by units of American International Group Inc., New York.


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