September, 2011

Over the past few months, state regulators have announced plans to examine industry practices in the areas of Contingent Annuities and non-unitized Separate Accounts. To us, what is noteworthy about these initiatives is not that regulators have chosen to focus on these two particular topic areas. What is noteworthy is that both of these subject areas have been around for some time. State regulators have approved contracts associated with these concepts, and industry practices haven't significantly changed over the years. If these are examples of products and approaches that have been "hiding in plain sight", what are we to make of the fact that regulators suddenly have concerns?

If we take the view that insurers have not attempted to be deceptive or dishonest (which I personally believe is the correct view), and if we believe that regulators are not looking for problems where none exist, how can the industry operate in the future to "nip this in the bud"? After all, an insurer needs to be able to rely on state approvals of a product to execute its long-term market strategies. A situation involving regulators circling back years after approval to express concerns disables a coherent product execution strategy.

Proving additional disclosures and education to regulators in a more collaborative way at the time of product filings seems to be one way to close the gap. Some of this could involve direct conversations before product submissions to make sure that regulators are aware of areas that carriers feel may fall into gray areas. The early dialogue needs to be strengthened – otherwise, we will continue to find ourselves retracing old territory.

Tim Pfeifer
President