Senior Citizen News Article
NAIC Committee Passes Senior Citizen Annuity Protection Rules
Though the regulations still need to get formally adopted by the association, the model has made significant progress for suitability regs.
By Laurie Kulikowski
July 29, 2003- New state insurance protection regulations, passed last week by a National Association of Insurance Commissioners committee, marked a turning point in how annuities will be sold by registered reps and insurance agents.
Though the proposal still needs to get the official okay from NAIC executives and the association at large, it’s looking pretty good that senior citizens will now have formal protection procedures in place to stop abusive annuity sales practices by insurance producers.
The rules state that insurance agents and reps using annuities with clients age 65 or older must have reasonable grounds for believing that the annuity is appropriate for the consumer. This is after the rep obtains the necessary client financial information when determining investor suitability. The rules also say that producers do not have obligations to the client if the senior refuses to provide pertinent information or decides to enter into an insurance transaction that was not recommended by the producer.
"[The proposal] was gone through very carefully and negotiated to make sure that it was reasonable and was not an unnecessary burden either on the industry or on regulators, but still provided the kind of protection that would be needed," said Merwin Stewart, chair of the Life Insurance and Annuities Committee.
In addition, insurers must design compliance standards to ensure that senior clients are getting appropriate advice and that producers are following the rules.
"They have a responsibility to make sure that their agents or producers are getting the right information to serve the consumer well. Each company will have a responsibility to set up guidelines and education and to monitor their insurance producers," Stewart said.
As much as industry trade groups are pleased that the NAIC has come up with rules to offset senior investor abuses, some groups are saying that these insurer compliance audits would be an unnecessary and confusing practice - particularly when it came to the NASD-regulated variable annuities.
"With variable annuities included in the proposal there is a potential conflict of the supervisory duties of broker-dealers under the NASD rules. This new provision [says] the supervisory [role] rests on the insurance company," said Linda Lanam, vice president of annuities at the American Council of Life Insurers.
According to Lanam, the NASD requires that broker-dealers supervise its reps who sell insurance with already created compliance rules. "It isn’t clear how those two would mesh," Lanam said.
The ACLI wants the NAIC to clarify this point.
However, if indeed the rules required insurance companies to supervise their producers, "the option to the broker-dealer would be to cease selling variable annuity products. They simply will not allow a multitude of insurance companies -- whose products they distribute -- to come in and attempt to supervise the reps. It just isn’t practical," Lanam said. Not to mention confusing for reps to follow multiple suitability rules for multiple products.
Yet the NASD compliance rules for variable annuities should satisfy suitability requirements, according to the NAIC.
"The federal regulators have a lot of suitability requirements already in place with respect to variable annuities and these were adopted and incorporated as part of this model. It was not intended to duplicate them, but use them and add any insurance aspects that were involved over and above the security investment side," Stewart said.
The NAIC said the final approval should come at its fall national meeting in September.
Senior Citizen Aticles | Annuity Protection
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