Sean Dilweg

As Wisconsin's insurance commissioner and vice chairman of the Life Insurance and Annuities (A) Committee of the Kansas City, Mo.-based National Association of Insurance Commissioners, Sean Dilweg is focusing on suitability, wholesaler training and curbing VA abuse. Q. Having just been named as vice chairman of the (A) committee and rolling into your second year as the Wisconsin insurance commissioner, what are your goals for the upcoming year? A. We've been looking at issues such as annuity training and supervision. The NAIC spent time on suitability going back a number of years, but what we've been looking at in Wisconsin and what I hope to lift up into the national level is: What actual training and supervision is occurring? Suitability is such a vital question in the sales of annuities as they become more and more complicated. Q. What are some of the details on initiatives in Wisconsin?
A. Basically, we've looked at how all the information is being provided to the clients and whether agents — who are really on the front lines here — are up to speed on the new products as they come out. It's an important area, because in the next decade, there will be the largest transfer in wealth that the nation has ever seen as baby boomers retire. Variable annuities are one of the main vehicles through which this will occur. We want to ensure that the consumers making the decision have everything they need to make the proper decisions. Q. Between 2004 and 2006, complaints on annuity sales practices in Wisconsin rose to 294, from 193, or about 50%. How have those events affected enforcement in your state and in your work with the NAIC? A. The bulk of my enforcement actions have been on the suitability of annuity sales. It really ranges from: "Is the agent consciously doing it?" or, "Do they not understand the product they're selling?" I'd say it's about 50-50. I worry about the agent who doesn't understand what he or she is selling. I know Wisconsin's [annuity sales supervision advisory committee] had spent some time on suitability, but we're not going to show up with an answer next month. We just started the information-gathering stage and will spend the next year or so putting together something that could be a model for the rest of the states. That's why I look to what we've set up already in Wisconsin to lift that up to some level at the A committee at the NAIC. Q. Although it concerns bond insurance, the debacle involving Ambac Financial Group Inc. of New York and MBIA Inc. of Armonk, N.Y., have exposed some of the insurance carriers' flaws. How might you apply that to variable annuities and life insurance, especially with regard to the guarantees that have become so popular? A. The monoline companies are very unique, and their claims are really of a different nature. We in Wisconsin are a very market-based regulator. I'm not going out and studying the rates of each new product like somebody in Florida would do. I'm making sure there's competition in the marketplace ... where companies may be competing against each other. I'm making sure that the companies are well capitalized, because in the end, they pay the claims that the consumers may trigger. That's very much Wisconsin's approach, and it has led to a healthy marketplace here. It's very hard to translate what's happening to the monolines today, versus annuities. Q. Do you keep an eye on the financial health of the life carriers? A. As far as the life carriers, everyone in the nation follows the same financial-examination standards. Once every five years, we look at the company. With the rise of modern technology, it's a lot easier to see any claim trends, and that's the market side. If we start seeing a spike in complaints from one company, we get in there on the market examination side. We feel very confident on life insurance companies. If you look at the role of state regulators, frankly, our role has caused them not to have exposure to the subprime-market collapse, and that's very much a positive. Q. How do you balance regulations and sales, ensuring that you are protecting customers but not stifling creativity? A. As far as how variable annuities enter the market, we approve the basic policy forms, but we don't get into the way the products are packaged and marketed. I personally set aside time two or three times a year to sit down and look at new products as they come out. From the enforcement side, I need to understand what may be happening. We're seeing a rise in the product that guarantees principal, a shortening in surrender periods, and eliminating surrender charges and penalties. These things are market-driven, which is positive. I spend time internally with the staff, understanding each new product. We interact with other state and federal agencies. We stay close to the [Securities and Exchange Commission]. We try and hit all the sectors. Q. Are there any changes in the way states are approving products? A. We're shifting much more to file-and-use in Wisconsin. We have legislation pending here that's been through both houses. With file-and-use, there's much more burden on the insurance company. And that allows us to focus on the troubled companies and pay attention to the problematic areas, recognizing that the good actors are providing a quality product and complying with our laws. There's the [Washington-based Interstate Insurance Product Regulation] Commission, which gives providers the ability to introduce a product into a variety of states. Wisconsin is very close to joining that compact. Q. What are some details on file-and-use? A. Basically, instead of reviewing the policy form filings upfront, the provider has to file with us and attest to adhering to all of our state laws. Then they're set to roll out their product. They have to wait 30 to 60 days for our approval. Now, we may come back to them in six months and say, "You missed this; let's correct it." A company that has been working with us for years will know what they have to do to get a product out the door. It's a much quicker speed to market. Q. What are your office and the NAIC doing to make variable annuities more palatable to the advising community? A. The Wisconsin annuity sales supervision advisory committee is working on training and supervision so that advisers understand the product properly. We always emphasize that variable annuities are good tools and products, but it depends on your financial picture. You can't rely only on these products. You may want to be in a mutual fund; you may want to be in a bond fund. You need to look at a variety of products, and variable annuities are simply one more tool you can look at. Also, you shouldn't be purchasing these products in a vacuum. You're going to have a financial adviser, and a savvy consumer might also have an attorney who handles their estate, and an accountant. Advisers need to make sure the products are fitting clients' needs. Q. Since some tax inefficiencies may arise when an annuity becomes part of an estate plan, are you thinking of making attorney-adviser collaborations mandatory in certain cases? A. We're not looking at collaboration as a requirement. We encourage it as part of suitability standards and to make sure that the agent is aware of the senior consumer's tax status, financial status and investor objectives. This is all required under the suitability standards that Wisconsin and other states have in place. It simply goes back to: "Don't purchase these products in a vacuum." Q. What are some future regulations for Wisconsin and the NAIC? What do you see developing in other states? A. We're making sure that agents are well-trained. At the NAIC, the commissioners and staff get together to look across the states at market conduct problems. We then look at each other's states to see whether those same problems are occurring in our states. We coordinate on enforcement actions all the time. It gets back to the larger policy items, such as: Are these new products being understood by the customer? How can we make sure that consumers are getting all the information they need? The two big fronts we're looking at in Wisconsin are file-and-use and becoming a part of the [IIPRC] compact. Our legislative session is done at the end of March, and we expect things to be finalized shortly. The governor will sign the legislation, and it should be in place by June. Darla Mercado can be reached at dmercado@crain.com.