Close Close

Retirement Planning > Retirement Investing > Annuity Investing

What If Consumers Refuse To Answer Suitability Questions?

Your article was successfully shared with the contacts you provided.

Regulators and others are debating whether insurers and insurance producers should be able to sell annuities to consumers who refuse to fill out suitability questionnaires.

The Suitability of Annuity Sales Working Group at the National Association of Insurance Commissioners, Kansas City, Mo., sparked the debate by posting a discussion draft of revisions to the Suitability of Annuity Sales Transactions Model Regulation on its section of the NAIC’s website.

Drafters are trying to set the rules insurers and producers should follow when determining whether particular annuity is suitable for a particular consumer. Insurers and producers are supposed to get information about matters such as a prospective buyer’s income and access to liquid cash, to determine how well the consumer would be prepared to handle restrictions on access to annuity assets.

One section, Section 6E, would affect how an insurer or producer could respond when a consumer failed to answer suitability questions.

The Center for Economic Justice, Austin, Texas, says insurers should have to have suitability information in hand before issuing annuities.

Allowing an insurer to issue an annuity without getting suitability information “guts the regulation, because it allows – even incentivizes – an insurance producer or insurer to avoid gathering relevant information to avoid becoming aware of information which would eliminate a desired recommendation,” Birny Birnbaum, the executive director of the center, writes in a comment on the draft.

Steven Ostlund, an actuary with the Alabama Department of Insurance, has written to suggest that insurers and producers might be able to do without suitability information in some cases, if the consumer is the one who really does not want to provide the information.

“We should not be penalizing the buyer for a seller requirement,” Ostlund writes in a comment on the draft. “For example, if Bill Gates did not want to release suitability information, a producer and company would obviously be confident the product would not be unsuitable and should be allowed to issue the product.”

In some cases, not allowing the transaction to take place at all could hurt the consumer, Ostlund says.

Herbert Olson, general counsel at the Vermont Department of Banking, Insurance, Securities and Health Care Administration, writes that Vermont shares Birnbaum’s views on the subject.

“If Mr. Birnbaum’s suggestion is not accepted by the group, however, [Vermont] agrees with [California's] suggestion that in the case of a consumer’s refusal to provide suitability information the producer or insurer should explain to the consumer why this information is important and in the consumer’s best interests, Olson writes.

MetLife Inc., New York, believes that many sections of the draft, including parts of Section 6, are unclear, and the sections describing the scope of the draft are especially confusing, according to Eric DuPont, a government relations counsel at MetLife.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.