The old adage of ‘rules are made to be broken’ can not be applied to Suitability Determination for annuities. The financial penalties far outweigh the potential gains. So how do you enforce suitability rules?
Suitability determination is difficult to enforce. But it has to be enforced to ensure that the customer owns a product that meets his or her profile and the distributors of the product are not open to legal action further down the line.
Just hoping that the producers selling annuities follow the rules is not enough. The number of product combinations that are viable before applying suitability restrictions is enormous, so its tricky for producers to really be sure that what they offer follows the rules unless they list a very limited portfolio, which in itself may not be in the best interest of the customer.
There are software services such as Finetre AnnuityNet that enable the suitability rules to be defined by Broker/Dealers to meet their required thresholds and risk profiles, limiting which products a particular producer can see. Many NAVA members work with this service.
For organizations that want to bring suitability rules processing in-house, rather than depending on an ASP service, it is worth understanding a little about the underlying technology of ‘rules’. James Taylor writes a great blog Enterprise Decision Management that covers these types of issues. As an example, he cites the improvements that Auto Club Group saw using business rules to help reduce the go to market effort for new product features, while radically increasing the amount of business they could underwrite. An introduction is here.
My feeling is that implementing business rules in their own right is not enough. As I gather my thoughts I’ll post some more.
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