NAIC: Is The Suitability Standard Still Suitable?

By John Hilton InsuranceNewsNet

KANSAS CITY -- The National Association of Insurance Commissioners' working group wasted no time getting right to why members are gathered here: What is "best interest?"

More importantly -- has the suitability standard outlived its usefulness?

The Annuity Suitability Working Group is meeting today and tomorrow in an attempt to finalize an annuity transactions model law to send to the states for adoption.

On one side, liberal states such as New York and California were joined by consumer groups in arguing for tougher standards. The other side featured conservative states such as Iowa and Idaho and industry groups who say suitability is working well.

Various state commissioners weighed in during a lengthy debate this morning.

"I can't think of a case in Tennessee where the suitability standard prevented us from having an enforcement case go forward," said Lorrie Brouse of Tennessee. "I don't think we want to create a situation where producers are afraid to offer products."

Vice Chairman Doug Ommen, Iowa insurance commissioner, defended best interest language proposed by his state. It calls for "reasonable competence, trustworthiness, fair dealing, diligence, care and skill by the producer."

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New York, on the other hand, favors tougher language: "In recommending a sales transaction to a consumer, the producer or insurer where no producer is involved, shall act in the best interest of the consumer."

New York Insurance Commissioner James Regalbuto waved off industry claims of few complaints.

"Consumers don't recognize when they receive conflicted advice. It's very surreptitious that way," he said. "I think it's essential to go that extra step and say 'Would you go ahead and do this if you knew as much as the person making the recommendation?'"

Ohio Insurance Commissioner Michelle Rafeld listened to both arguments before coming to New York's side. Suitability works well, she said, but the cases of major fraud are suitable recommendations.

"These can be very elaborate fraud schemes that go on for years," she said. "If you had to explain 'How is this in the best interest of the consumer,' that seems to be the final piece."

Before breaking for lunch, the group seemed to achieve some middle ground on adopting the Securities and Exchange Commission's definition of "best interest."

Industry groups urged the working group to be sure to "define what it is not," as expressed by Jason Berkowitz, vice president of regulatory affairs for the Insured Retirement Institute.

What it is not is some guarantee of future performance, he added.

"We keep hearing references to 'outcomes,'" Berkowitz said. "Those things cannot be the responsibility of the producer, the insurer, at the time they are making the recommendation. That's paralyzing. If I were the producer and that was the requirement put on me, I would go back to school and find another line of work."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.