Concerns Remain As NAIC Tries To Advance Suitability Model
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Lingering concerns over the details of proposed suitability regulation that would protect senior citizens who purchase annuities are causing a drag to a process regulators hope will be fast-tracked to adoption.
When the National Association of Insurance Commissioners, Kansas City, Mo., meets this week, it is still the intention to advance the model act and regulation toward adoption, says Merwin Stewart, Utah insurance commissioner and chair of the Life & Annuities "A" committee.
The Senior Protection in Annuity Transactions model act and regulation is the latest response to a sales suitability issue that has been heatedly debated for over three years. The latest version of the model focuses on senior citizens rather than sales suitability for the population as a whole because regulators maintain that the senior population is most susceptible to unsuitable sales.
But, it was this focus that was among the issues Birny Birnbaum, an NAIC-funded consumer representative and executive director of the Center for Economic Justice, Austin, Texas, questioned on the issue.
Birnbaum asked why the model was limited only to senior citizens rather than consumers in general.
Additionally, the proposed model should have a standard of conduct specifying that an insurer and a producer shall not make an unsuitable recommendation to a consumer, he said.
And, he continued, a private right of action should be part of the model. In spite of efforts of "hard-working insurance regulators" to police the marketplace, Birnbaum said resources are "very limited" and the record for identifying and remedying market conduct abuses, "spotty." Consequently, a private right of action is needed, he said.
To adopt the model, he continued, would be "worse than doing nothing" because it seems to offer consumer protections when, in fact, it may reduce them and provide insurers with "a liability shield they dont already have."
Indeed, the removal of a part of the purpose section of the model addressing a private cause of action was one that insurers said could make support difficult.
The sentence in the draft reads: "Nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation."
Frank Dino, a Florida regulator and life actuary, questioned why the issue was included in the model given that a consumer still has the right under law to pursue a legal redress. He raised the issue of whether it would create the appearance that regulators are moving away from consumers rights.
But Linda Lanam, ACLI vice president and deputy general counsel with the American Council of Life Insurers, Washington, said that in states where complaint records are public, there is anecdotal evidence that plaintiffs attorneys have come in and reviewed those files.
"Deleting it [the sentence] is a significant change in the direction and approach and might make it difficult to do anything but oppose it," she said.
