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HOT ISSUES IN LIFE/ANNUITY ADVERTISING

AICP Mid-Atlantic Chapter E-day June 9, 2014 Cailie A. Currin, JD Currin Compliance Services, LLC

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NOTICES

Not intended as legal advice Information provided does not create an

attorney-client relationship General discussion, not a comprehensive

discussion of the rules in all states.

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BRIEF SYNOPSIS

Done a couple of weeks ago… then Kansas 2014-1

Perhaps most important development in advertising compliance in decades

Started over from scratch

Let’s talk about it

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KANSAS BULLETIN 2014-1

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KANSAS BULLETIN 2014-1

Issued May 21, 2014 Reiterated bulletin 2012-1 regarding third party advertising

materials. “No regulatory buffer” This time, focused on IMOs

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2014-1: PURPOSE

“The purpose of the current Bulletin is to make clear that this responsibility applies to the marketing activities of third party intermediaries most commonly known as Independent Marketing Organizations (IMOs) and Field Marketing Organizations (FMOs).”

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ROLE OF IMO/FMO

“IMOs and FMOs are playing an increasingly important role in the marketing and distribution of life insurance and annuity products as well as in recruitment, training and education of producers.”

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POTENTIAL VIOLATIONS

“In many instances, advertisements and marketing material produced by IMOs and FMOs exhibit potential violations of K.A.R. 40-9-118 which is based on an NAIC life insurance and annuities model regulation.”

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EXAMPLES FROM 2014-1

Failing to identify the insurer when promoting a specific product or product feature

Using misleading, deceptive and/or incomplete information intended for the general public in what appear to be bait-and-switch sales tactics

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EXAMPLES FROM 2014-1 (CONT)

Exaggerated and unsubstantiated claims regarding the benefits of a product

Recruiting, training and educating producers using misleading, deceptive, and/or incomplete material which is designed to be used for advertising to the general public.

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WARNING TO INSURERS FROM KANSAS:

“The Department expects insurers to treat this as a serious matter and to take appropriate steps to ensure compliance [with the advertising regulation] such as regular communications with IMOs and FMOs regarding advertising compliance and to actively monitor IMO and FMO marketing and advertising activities including agent recruitment and training efforts.”

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WARNING (CONT)

“Failure to do so may lead the Department to take administrative action against any life insurer utilizing IMOs and FMOs employing unfair and deceptive methods to advertise and market that insurer’s products.”

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ADVERTISING AND THE “NEW” WORLD OF DISTRIBUTION

Context

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HOW DO “WE” REALLY KNOW WHAT HAPPENS IN THE FIELD?

At seminars Across the kitchen table In producer’s office Diverse distribution channels

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WAY BACK WHEN

Captive force dominated insurance sales Employees of the carrier

Easier to control sales practices advertising other activities

Products were generally less complex “Cleaner” Environment meant “Cleaner”

Regulations

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BUT NOW…

Distribution systems far more complex Many successful agents gravitate to

independent model Many carriers no longer have direct control

over sales force Products constantly evolving

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WHAT TO DO? Ever higher compensation means more

responsibility BGAs/IMOs and FMOs MUST have some

internal compliance/risk management processes Assess Intermediaries

• Attestations of proper controls may not be sufficient

Ensure contracts clearly define compliance expectations

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COMMUNICATION WITH IMOS AND PRODUCERS

Ongoing

Educate Reinforce/Remind

Document

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AGENT OVERSIGHT PROGRAM

Risk Based Program Holistic Approach Proactive Data Analysis Agent Oversight Committee

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CONSEQUENCES OF INEFFECTIVE COMPLIANCE

Sanctions Lawsuits Reputational risk Loss of business

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ROADBLOCKS TO PARTNERSHIP

Overbearing carrier compliance Stifles Initiatives Not connected to the ‘real world’ Rules are often created in ‘ivory tower’

environment Communication rather than dictating ‘We’re in this together’

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IMO COMPLIANCE STRUCTURES CAN BE DIVERSE

Compliance mechanisms mixed Some have strong internal support, many

weak Attestations & contract clauses not likely to be

enough Support/communications needed

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NEXT STEPS

Insist on some compliance organizational structure

Assess compliance program Provide assistance in creating structure Provide flexible support Start talking about the risks, support and

solutions Insurance is still a relationship business, true in

compliance as well as sales

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TAKE AWAYS

Compliance must become more active as distribution becomes more complex Annual Compliance Questionnaire Annual Compliance Meetings Assessments/Inspections Contract Language Attestations Secret Shopper Program

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REMINDER:

The Department expects insurers to treat this as a serious matter and to take appropriate steps to ensure

compliance.

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QUESTIONS?

www.currincompliance.com