New Suitability Alternative Being Circulated Among Insurers

Alexander says the alternative does not seek to define "reasonable."

The alternative model also states that "an insurance producer shall not recommend to any consumer the purchase of any individual fixed life insurance policy or any individual annuity contract or any rider, endorsement or amendment thereto, without reasonable grounds to believe that the transaction or recommendation is not unsuitable for the consumer based upon reasonable inquiry concerning the consumers insurance objectives, financial situation and needs, age and other relevant information known by the producer."

Of companies, it states that it is "the duty of the insurer to adopt procedures reasonably designed to monitor insurance transactions effectuated by producers."

The current draft, according to Alexander, would make the agent responsible at the point of sale and make the company responsible for periodic audits of the effectiveness of systems to monitor compliance.

Ron Panneton, associate general counsel with the National Association of Insurance and Financial Advisors, Falls Church, Va., says the new proposal still does not address issues that have been discussed over the last two years.

What needs to be looked at again is whether there is the need for a suitability model, he says. There is no support in the industry for a model, Panneton continues.

Even if a model is advanced, "the lack of support throughout the industry suggests that few states would consider it and in those that did, it would be subject to amendments," he adds. This likelihood, he says, "flies in the face of the laudable goal of uniformity."

Reproduced from National Underwriter Life & Health/Financial Services Edition, April 29, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.