Suitability czar plan raises questions

Jul 23, 2007 @ 9:48 am

By Gary S. Mogel

NEW YORK — Is the creation of a top-level suitability monitoring job by Allianz Life Insurance Company of North America a step forward in annuity marketing or a defensive position in response to a battery of lawsuits? That is a question many industry observers are asking after Gary Bhojwani, chief executive of the Golden Valley, Minn.-based insurer, said in a statement that it “expects to name its chief suitability officer by the end of the third quarter of 2007.” The creation of the CSO position isn’t a response to recent legal and regulatory scrutiny of its annuities, according to the company. Allianz is the top seller of equity index annuities and also sells other types of fixed annuities, as well as variable annuities. It is embroiled in lawsuits — several in which class action status has been granted or is being sought — related to its annuity sales practices The office of Minnesota Attorney General Lori Swanson sued Alliance in January for fraudulently marketing EIAs to senior citizens. “Allianz can dress it up all they want with their [public relations] fluff, but nothing has really changed,” she said in an interview.

“Company officials at Allianz demonstrate ostrichlike behavior and intentionally choose to be ignorant — they don’t want to know what is going on regarding suitability,” Ms. Swanson said. “They need to radically change their conduct and attitude — and fully inform the consumer about the duration and other aspects of the contracts they sell — and start asking the right questions to determine suitability.”

Others contend that the lawsuits were Allianz’s motivation to create the position of chief suitability officer.

“Allianz’s actions were in part a response to the spate of lawsuits and other complaints about its annuities,” said Craig McCann, president of the Securities Litigation and Consulting Group Inc. in Fairfax, Va.

A better name for the job might be “chief officer of unraveling complexities,” said Chris Bebel, a partner in an eponymous law office in Houston. Suitability has become a problem because annuities — especially those of Allianz — have become too complicated, he said.

Others, however, say that the company’s move isn’t window dressing but a step in the right direction.

“Any action that an organization takes to increase suitability standards is viewed as positive,” said Marc Steinberg, a senior analyst at insurance rating firm A.M. Best Co. Inc. in Oldwick, N.J. That is especially true for the complex products Allianz sells, which have received a “high degree of scrutiny,” he added.

“[The CSO position] is a positive step, even if it was partially PR motivated,” said P.J. Sacchetta, president of CFIG Wealth Management in Westport, Conn. “It shows that Allianz is listening, but more suitability-related focus should be on the distribution end,” he added.

Allianz spokesman Jim McManus said, “The regulators we have spoken to about the CSO position have responded favorably.” He didn’t identify which regulators the company had contacted.

Help wanted

Allianz is conducting “an extensive national search” to identify top candidates for the position, Mr. McManus said. “The ideal candidate is someone who is an established leader in the financial services industry, with proven suitability review experience,” he said.

The CSO will oversee and continue to develop the company’s suitability process and strategy, Mr. McManus added. That person will manage Allianz’s internal suitability team and develop relationships with third parties in order to ensure the effectiveness of the company’s suitability standards and guidelines, and will report directly to Mr. Bhojwani, he said.

“The CSO will expand and refine the current suitability process at Allianz Life to monitor the sales and suitability of fixed annuities — traditional and fixed indexed — that are submitted directly to the company,” Mr. McManus said. “Additionally, the CSO will monitor and support the current suitability responsibilities for business submitted by broker-dealers.”

“The CSO will develop greater oversight to ensure that each sale is suitable and that Allianz Life customers understand the features and benefits of the product they are considering or already own,” Mr. McManus added.

Along with creating the CSO position, Allianz this month started requiring its agents to complete a sales training course and promise to follow a code of best practices. The company also announced that it will be “devoting more resources” to suitability screening and customer service.

Wait and see

Other insurers said they are monitoring annuity suitability in various other ways short of a CSO overseer and do not currently have plans to add that executive position.

“This is the first I’ve heard of that [CSO] position,” said Amy Haid, director of corporate compliance for Nationwide Financial Services Inc. in Columbus, Ohio. Nationwide is merely a manufacturer of financial products and therefore has a different compliance structure than Allianz, which also distributes products, she noted. “We provide the tools to the independent distributors so they can make suitability determinations,” Ms. Haid said.

“Currently, Sun Life Financial [Inc.] does not have a chief suitability officer, but we utilize a variety of controls and processes to oversee suitability issues,” said David Jacobson, a spokesman for the Toronto-based company.

Similar responses were received from The Hartford (Conn.) Financial Services Group Inc., Jackson National Life Insurance Co. in Lansing, Mich. and MetLife Inc., AXA Financial Inc. and The Guardian Life Insurance Company of America, all in New York.

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