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Replacement (ri-'plas-ment): Noun. The action or process of replacing.

Replacement (ri-'plas-ment): Noun. The action or process of replacing. Carla Strauch, MBA, AIRC, FLMI Director, Insurance Compliance Thrivent Financial for Lutherans. 2009 ACLI Legal & Compliance Sections Meeting, Boston, MA. Replacement Model Form Adoption. Comments Noted on Survey:

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Replacement (ri-'plas-ment): Noun. The action or process of replacing.

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  1. Replacement (ri-'plas-ment): Noun. The action or process of replacing. Carla Strauch, MBA, AIRC, FLMI Director, Insurance Compliance Thrivent Financial for Lutherans 2009 ACLI Legal & Compliance Sections Meeting, Boston, MA

  2. Replacement Model Form Adoption • Comments Noted on Survey: • “Model States Only”: We use each of the models, depending upon which one has been adopted by the states. For those states that have adopted something different (e.g., UT), we use what they have enacted.

  3. Replacement Model Definition Adoption • Comments Noted on Survey: • “NAIC Definition in Model States Only:” As noted above, we use whatever each individual state has enacted. 3

  4. Board/Senior Management Reporting • Comments Noted on Survey: • “No:” Senior management only. 4

  5. Trending to Field Supervisors • Comments Noted on Survey: • “Yes:” As wholesale Broker/Dealer, provide to Distribution Management. • “No:” Managers receive report. Not field supervisors. • “No:” On the life side - exclusively independent distribution. 5

  6. Source of Benchmark Data • Comments Noted on Survey: • “Other:” LIMRA CAP Survey. 6

  7. Willingness to Share Tools/Checklists • Comments Noted on Survey: • “Yes:” We view "replacement" as one factor under the "suitability" umbrella. We have a suitability form (enclosed), replacement forms in those states that require such (newer Model form enclosed) as well as replacement and suitability sign-offs on our application forms (have enclosed one deferred annuity application form for example purposes). • “Yes:” We don't have company specific forms, we utilize the forms required by the states. • “No:” Independent sales force. Suitability done at producer level. 7

  8. Use of Internally Created Comparison Forms • Comments Noted on Survey: • “Yes:” For annuities only. • “No:” We audit our new business files to ensure that we’ve received the suitability form together with the application form. 8

  9. Tools to Detect Unreported Replacements • Comments Noted on Survey: • “Other”: Life is more difficult; letter sent to the insured to verify. Done an a random basis. 9

  10. Internal Replacements as a Percent of New Sales • Comments Regarding Survey Responses: • A few insurers provided separate numbers for life and annuity. 10

  11. External Replacements as a Percent of New Sales • Comments Regarding Survey Responses: • A few insurers provided separate numbers for life and annuity. 11

  12. Total Replacements (Internal and External) as a Percent of New Sales 12

  13. Top Challenges: Most Votes by Category • Comments Noted on Survey: • “Other”: Producer compliance; completing forms properly. 13

  14. Top Challenges: Based on #1 Vote 14

  15. Compensation Differs for Internal Replacements • Comments Noted on Survey for Other Category: • Depends on the specific situation. • Not for Life. Annuities, yes if during surrender charge period. • Generally, the answer is "no". There is only one exception for internal term-to-term replacements. • If the replaced term insurance coverage is within its first contract year, compensation is prorated for the number of months each contract was in force during the "first year". The "first year" begins with the issue date of the replaced contract. • During years 2 through 4, normal compensation will be paid only on any increased in face amount. • Normal compensation will be paid on the new contract, if the original contract has been in force at least 4 years. 15

  16. Compensation Differs for External Replacements 16

  17. Percent of Replacements Receiving a Suitability Review • Comments Regarding Survey Responses: • A few insurers provided separate numbers for life and annuity (captive and independent) • We require the distributors to review and maintain suitability information (independent). • Handled by unaffiliated broker/dealers (independent). • Review performed at producer level (independent). • Suitability review is delegated to outside firm. We only conduct a suitability review for 1 firm that informed us that they would not be conducting a fixed annuity suitability review (independent). 17

  18. Area Responsible for Suitability Reviews • Comments Noted on Survey for “Other Category” (Independent Distribution): • As noted in the Model, suitability determination is a requirement of the producer, and our oversight is to ensure we received signed copies of our suitability form as well as signatures on our applications that each includes replacement and suitability questions/attestations. • We require the distributors to review and maintain suitability information. • Review performed at producer level. • Retail Broker Dealer. • Underwriters, third party for select bank annuity sales. 18

  19. Questions? Reminder: See program binder/notebook for samples of forms and tools shared by survey respondents. 2009 ACLI Legal and Compliance Sections Meeting, Boston, MA 19

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