What does your state say is a suitable sale?

By John L. Olsen, CLU, ChFC, AEP

Olsen & Marrion, LLC

As I've noted elsewhere, suitability is largely a matter of state statutory definitions and case law. Most states have now adopted the 2010 NAIC Suitability in Annuity Transactions Model Regulation into their insurance statutes, but often with modifications that vary from state to state.

What does your state say about suitable sales? Do you know? Have you checked your state rules? If not, I have two letters for you. The first one is "E." The second one is "O."

This is very serious stuff. As an insurance agent, you're held to some standard of suitability, at the very least. Precisely what will or will not be considered suitable depends upon the law in the states where you practice.You may also be held to some variant of the fiduciary duty standard, depending upon (a) the credentials you hold (b) the professional organizations to which you belong, (c) how you hold yourself out, or what you say or imply that you do for clients.

I would very much like to hear from readers about the specific rules in their states, whether their state securities regulators consider some non-variable insurance sales to be subject to their rules (that seems to be the case in Illinois at least).

Even if you don't sell annuities, that NAIC Model Reg will govern how you sell insurance. Why? Because Section 989J of the Dodd-Frank law included an "end run around state insurance regulation" provision – a threat, really – that will force state regulators to adopt the suitability provisions of that Model Reg or risk having insurance sales in their states subjected to SEC scrutiny.

So, states are falling in line, to adopt a specification of suitability that, whether one approves of the end run manner of its imposition, is entirely reasonable and clearly in consumers' best interest. And insurers are clamoring to revise their suitability standards to comply as well (as there's a provisions relating to insurers' compliance in Sect 989J, too).

Have you incorporated the requirements of that Model Reg into your practice? (If you're not now subject to them, you will be). What other requirements does your state impose, and have you established policies that will ensure that you meet those requirements?

I'd love to hear from readers on how they're dealing with these issues.