Regulators OK Exemptions For Some Products In Suitability Model
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A controversial draft document that establishes guidelines for the suitable sale of products created more controversy during a discussion among regulators over which products should be exempt from its requirements.
State insurance regulators who are part of a suitability working group decided to exempt individual life insurance and annuity products sold to employees during worksite visits.
They also exempted credit life insurance from the requirements of the draft model of "Life Insurance and Annuities Suitability Model Regulation," a document being developed by the National Association of Insurance Commissioners in Kansas City, Mo.
And regulators in this working group also removed an exemption for long-term care products that was in an earlier draft because they maintained it was a health product and would not be included under the scope of the draft model.
The credit life insurance exemption is contingent upon confirmation that another working group of the NAIC that is addressing credit insurance issues examine suitability standards for credit life insurance.
The unanimous decision to exempt the worksite sale of individual life insurance and annuity products was made after a discussion over whether not granting such an exemption would kill the product by making its sale too cumbersome and whether such a possibility should be considered a legitimate reason for its exemption.
Patricia Jackson, a senior counselor in the law division of Met Life Inc. in New York, said that to comply with the requirements of the model regulation, a company would have to do fact finding, a process that would take several hours. No employer is going to allow an employee to take several hours during a day to do this, she said.
Jackson pointed out that it is a simple sale with no sales illustration. Employees determine whether they need the insurance and what amount of insurance they can afford, she added. No direct solicitation is made.
The average policy sold is less than $27,000, according to Jackson.
But Jack Yanosky, a regulator representing the Pennsylvania insurance department, raised the issue of whether solicitation did in fact go on. In the real world, he said, an agent would not walk away from seeking a commitment. An agent, Yanosky explained, would try to find an amount that an employee would agree to have deducted from a paycheck. So, for example, if $5 a week was too high, he argued that an agent might see if $3 was acceptable.
