The topic of supervision of independent insurance agents has long been a challenge for insurance carriers. There are differing views among carriers on whether any supervision should take place and if so, how it should take place, given the “independent” nature of the distribution. But “independent” or not, they are still agents of the carrier.
Now the Department of Labor’s Fiduciary rule is raising that conversation to a new level for insurers who offer fixed index annuities (FIAs) through the independent agent channel. The added requirements of the Best Interest Contract Exemption (BICE) create a significant litigation exposure for carriers, some of whom may not be willing to take on that liability.
John Matovina, President and CEO of American Equity Investment Life Holding Company, was quoted last week in this on-line article from with his thoughts on the matter. He suggested that this potential liability may cause insurers to move away from the independent channel and focus on sales through banks and broker/dealers to take advantage of their existing supervisory structure.
Key to this discussion is the issue of agent supervision. A major question is if insurers can effectively supervise a producer who may be selling FIAs for multiple insurance carriers. Aside from the tremendous compliance resources this supervision may require of carriers, and potential resistance from a sales force that embraces its independent nature, there are numerous practical considerations that make this task challenging. Mr. Motovina alludes to one of these, which is how to exercise effective oversight over a producer who, in any given sale, may end up selling another carrier’s product? Would every carrier with whom an agent is appointed have to oversee every sale because there is a possibility that their product would be sold?
As the article mentions, Mr. Matovina is among the first executives from the top FIA carriers to comment on the impact of the DOL rule. In a May 2nd follow up communication to producers from Ron Grensteiner, President of American Equity Investment Life Insurance, the company clarified that their earlier comments were not an indication that they are exiting the FIA market place. Rather, they will continue to follow their current processes for the sale of non-qualified annuities, while continuing to explore their options for making qualified FIAs available to their independent distribution channel.
So this raises a key question - will other FIA carriers consider the more conservative position, turning to banks and broker/dealers in an attempt to limit liability? Or will they seek to implement a supervisory structure for their independent agents, perhaps through intermediaries such as IMOs? Would IMOs be willing to step into this space and supervise? Many questions about the rule itself are still undergoing interpretation, and this is sure to be a critical part of an insurer’s analysis for their future FIA distribution models.