Heightened emphasis on annuity suitability requirements benefits the insurer, the consumer and the agent.
Suitability is a key process to promote sound sales practices, but insurers today are utilizing other approaches to advance consumer protection principles. Oftentimes, compliance departments help lead these strategies.
But why are insurers so interested in finding other approaches? The main reason can be found at the heart of the business model used by independent insurance agents.
The insurance industry includes a large field of independent agents and most operate without a formal supervisory intermediary such as exists with registered representatives in the broker-dealer business model. As a result, it is often the insurer's responsibility to fill that gap and ensure that agents are representing their products with ethics and suitability principles in mind.
While meeting compliance standards can sometimes be challenging for agents, the end result benefits everyone involved in the process–most importantly, the customer. Carriers want to be represented by the right type of agent. Following compliance guidelines breeds good habits that can be used in every part of an agent's practice.
Compliance evolution: Creating a holistic view of the agent
The good news is compliance continues to evolve as insurers realize the benefits of implementing more robust "supervisory" standards. This is occurring in a number of ways, most visibly with how insurers strive to know their agents and understand the risks they may present. Previous supervision was primarily "event-based," relying on events such as complaints or allegations of wrongdoing to trigger a review of an agent. Today, more insurer agent-supervision programs are supplementing that model with additional "risk-based" supervision, which allow for an ongoing review of agents based upon pre-set risk factors that can help determine which agents, when reviewed holistically, pose a higher degree of risk.
Examples of these risk factors can include suitability results, customer complaints, regulatory investigations, advertising concerns, background checks, insurance licensing deficiencies, involvement in any litigation and many others. After creating a profile for agents that appear in multiple risk factors, the insurer can then analyze that risk profile to determine which of the identified agents pose an acceptable, manageable or unacceptable risk to consumers.
This deeper level of supervision may seem like insurers are going out of their way to make things more difficult for agents. But the outcome of enhanced supervisory programs makes agents' jobs easier by encouraging stronger business practices and behavior that both the carrier and the end client can trust. The ultimate goal of suitability and compliance programs is to enhance consumer protection by administering both types of supervision.
Carriers want to be represented by the right type of agent. Following compliance guidelines breeds good habits that can be used in every part of an agent's practice.
Importance of advertising review
Another important aspect of supervision is advertising review, which strives to ensure that marketing materials are fair, complete and balanced in their presentation. The objective is to make certain that marketing materials are never misleading to consumers. This includes ensuring all marketing materials comply with state and federal insurance advertising regulations, and providing principal approval of those materials.
The National Association of Insurance Commissioners (NAIC) notes that advertising is "material designed to create public interest in life insurance or annuities or in an insurer, or in an insurance producer; or to induce the public to purchase, increase, modify, reinstate, borrow on, surrender, replace or retain a policy." Similarly, in the securities world, FINRA Rule 2210, which outlines the specifics of its communications review process, states: "All member communications with the public shall be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry or service."
These are extremely important concepts, especially in an age where consumers have hundreds of messages coming at them on a daily basis and are finding it increasingly difficult to separate valuable information from filler. Insurers doing ad reviews of their own marketing material has been common practice for some time, but a new trend is emerging that puts materials created by field distribution partners, whether mentioning the insurer or not, under the similar scrutiny.
Providing review of independent marketing organizations while balancing their demand for independence is tricky. One approach is to engage independent compliance consulting companies that offer compliance regulatory services to the insurance industry. This can expand a firm's compliance bandwidth without adding new staff. Because the rules surrounding advertising review can be complex, these companies are essential to help distribution colleagues interpret all applicable state and federal insurance regulations. In addition, they can help train these field distribution organizations about ways to mitigate risk, which ultimately puts agents in a better place when meeting with clients.
Enhanced training in the field
While most of the attention around training these days involves implementation of the NAIC Suitability Model, a related trend can been found in the increased presence of field compliance officers who work within field marketing organizations. In addition to ad review responsibilities and assisting with the suitability process, these individuals provide significant training to increase understanding about compliance. This has been essential in giving insurers greater control of how their products are represented in the marketplace and has led to better relationships between insurers and agents in the field.
In addition to agent oversight, ad review and training, compliance departments are making a significant impact in a wide variety of areas including anti-fraud and corruption programs; the traditional compliance regime associated with the manufacture and sale of variable products; records management; and even information security. As compliance continues to extend its reach, it's important to continue to educate affected parties, particularly agents, so they understand the true value compliance brings to the table.
When independent agents meet with clients, they represent more than just their business—they serve as the public face for all of the insurers whose products they sell. By helping to identify issues before they occur, today's compliance departments are assisting agents in offering the best possible experience and building relationships their clients can believe in for the advancement of their retirement income and protection goals.
Michael Brennan is vice president and chief compliance officer at Allianz Life Insurance Co.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.