As IMSA Membership Falls, So Does Number of Independent Assessors

Since the formation of the Insurance Marketplace Standards Association in 1996, Ken Kalis has been a qualified independent assessor for life insurers in their certification process with IMSA, which promotes ethical standards in the sale and service of life insurance, annuities and long-term care insurance. But now, as perhaps the only assessor whose entire business depends on IMSA, he is worried that demand for his work is drying up.

"My marketing reputation is that I'm the IMSA guy," he said. "Last year, I worked with only one member company. The IMSA income was not enough to sustain me, so now I'm struggling."

Loss of business volume is not a problem unique to Kalis. IMSA has steadily lost both membership and independent assessors. Membership is now down to 64 companies, about a quarter of its peak membership, and the number of qualified assessors is down to 15 from a peak of more than 100. In May 2009, membership had been 90 companies. Under the original system, an assessor was an essential part of certification. Each company was allowed to create its own certification process, but it was up to the independent assessor to evaluate whether the process met IMSA standards.

The decline in membership is not the sole reason for the slackening demand for assessors. In 2008, the IMSA Board of Directors created an optional way for companies to renew or reinstate the three-year certification without the need for assessor services (Best's Review, July 2009). In using this option, a company's chief compliance officer and chief executive officer can simply attest that the company is in compliance with the 25 IMSA standards. For reinstatements within two years, an assessor tests only seven of the IMSA standards while executives' attestation accounts for the rest.

Kalis said he expected to evaluate the recertification this year of two large companies, but they dropped out of IMSA. From a retiring assessor, Tom Stallings, he bought the right to take over the servicing of some 25 to 40 companies, but so far, none of them has produced any business for him. "About half have dropped out of IMSA and half are renewing by attestation, which means there is no income to me," he said. Next year, Kalis said four of his companies are scheduled for renewal. "If they all renew, everything will be great," he said.

Dennis Groner, another independent assessor from IMSA's beginnings, has helped to certify 50 or 60 companies. He has recommended to his clients that they use the attestation process because it is much less expensive. But Groner also said that the process has diminished IMSA's standards "because you don't have anybody independent looking at the company's self assessment," and he was unsure whether he is going to continue his assessor work next year. "I don't know if IMSA is a going concern, a long-term viable entity," he said. "Look at what has happened over the years. Most of the big companies have left. One of my clients looked at the attestation process and said, 'We don't even need this.'"

Other large companies that did not renew in 2010 include Northwestern Mutual, Principal Financial, Pacific Life, Allstate and members of the AIG group.

Attempts to reach IMSA executives or board members for comment were unsuccessful. However, in previous interviews, IMSA said it sought help in 2007 from McKinsey & Co., a management consulting firm, on how to address membership challenges. That consultation led to the attestation process and a new direction in how to serve members. One is the association's "honest broker" initiative between companies and regulators and as the developer of standards for companies whether they are IMSA members or not. IMSA has worked with regulators to develop national standards for product suitability, disclosure and producer training on the sales of indexed annuities. It has also co-hosted, with AARP, events called "summits" on annuity suitability, and it has created an Annuity Suitability Certification Clearinghouse offering a technology designed to reduce the compliance burden on insurers and their selling partners by providing a "one-stop" facility to meet state compliance requirements.

In response to a request for an interview with Prudential, John Doscher, vice president of compliance for Prudential and a member of IMSA's board, provided a written statement on behalf of Prudential and board members. Four Prudential companies are IMSA members. "IMSA has changed with the needs of the marketplace and they play an important role in establishing standards within the industry regarding current issues of concern," he wrote. "Their efforts to gather federal and state regulators alongside industry personnel to discuss annuity suitability and other critical topics have proven to be extremely valuable to all involved."

Assessors, however, voiced concern that IMSA seems ready to face the future with few, if any, independent assessors. Kalis said attestation has the unintended consequence of losing independent assessors, and fewer assessors means less recruiting. "The problem for IMSA is that they don't reach out to add companies," he said. "It was the assessors that reached out, but if I don't get to service them anymore, and the companies just attest, that weakens the relationship, and there's no opportunity for active distributors out there talking up IMSA."

Asked if certification is IMSA's core mission, independent assessor Douglas Friedman said that IMSA "has kind of lost its way.

"They had a great opportunity when they had 270 members," said Friedman, a principal in the law firm of Friedman & Downey in Birmingham, Ala., and an assessor from IMSA's beginning. "Now the fact that they're down to 64 kind of speaks for itself and the direction they've taken."

Friedman said the membership difference "is just huge," and the question now is whether IMSA is relevant at this point. "When they started, the questions they were asking were not being asked by anyone else," he said. "Now some of the questions they're asking overlap with other regulatory and quasi-regulatory groups like the NAIC and state regulators. There was no one doing what they started out doing."

IMSA got many members because of bad marketing practices by some companies that resulted in much bad publicity for the industry, he said. "They had the right response at the right time," he said. "They had a great opportunity at that point."

Kalis said a big hope of his is that IMSA becomes rejuvenated. "We have the same standards as in 1998, so you can say that the companies are right about not wanting to repeatedly go through the recertification process," he said. "Why should they feel there's any value to it if the process hasn't changed? The original intent was that the process would change and that the bar would be raised higher."

Groner said that the number of independent assessors could drop to zero. "Why pay money to be an assessor and get nothing for it?" he said, referring to an annual $1,250 assessor fee. He added that he didn't think there were any assessors on the IMSA board and that no assessor works closely with IMSA on an ongoing basis. "At one time, we had an assessors' committee, and they did away with it."

Regarding IMSA's new directions, Groner said: "I think they're looking for a role, but I don't know what it should be. Are they going to be an advocacy group like ACLI? Were they involved in the most recent efforts to stem the SEC attempt to regulate index annuities? I don't think so. So the question I'm asking is what their role is going to be."

As an alternative to assessor work, Kalis said he is offering to help IMSA companies with compliance issues, such as writing manuals or state market-conduct exams. "What will be good for me is to find out exactly what happens with IMSA in the future," he said. "IMSA has been telling me they'll be around, that the problem is just the recession. But if that's not the case, I would have to look for another job."

Groner's final thought was that there has to be a cost-benefit basis for members. "If IMSA is going to survive, that cost-benefit proposition has got to be positive, because in our environment, a company can't afford to throw money away."

One of IMSA's major goals failed to materialize in its early years. Friedman said the association worked hard to obtain some extra value for members from state regulators, such as getting credit for IMSA certification when states conducted market-conduct exams. "That was a major interest people had and would have helped justify the membership costs," he said.

(By Ron Panko, senior associate editor, Best's Review: [email protected])