Q: What guidance does the FDIC provide for retail sales of insurance?
A: At a high level, the FDIC’s manual on retail insurance sales describes the following:
The following supervisory information and examination procedures apply to retail sales, solicitation, advertising, or offers of any insurance product or annuity1 to a consumer2 by a FDIC-supervised insured depository institution3 or any person engaged in such activities at an office of the institution or on behalf of the institution. These materials do not apply to sales of insurance or annuities that occur as part of an institution’s trust or fiduciary activities.
Insurance products are not FDIC-insured and may involve investment risk. Consequently, examiners must assess the quality of an institution’s compliance management system (CMS) as it pertains to the retail sale of insurance and annuities. Examiners must consider whether the CMS appropriately manages the risks involved in these activities, including whether the CMS produces compliance with Part 343 of the FDIC’s regulations (Consumer Protection in Sales of Insurance) and adherence to the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products (the Interagency Policy Statement)4 when variable annuities are sold.
Regulatory and Policy Requirements
The primary risks addressed by Part 343 and the Interagency Policy Statement are that consumers will:
• misunderstand the safety of insurance products sold by institutions, i.e., assume incorrectly that they are backed by the FDIC or another federal agency, or
• be coerced into believing they must purchase an insurance product or annuity in order to obtain a loan.
FDIC Part 343
Pursuant to the Gramm-Leach-Bliley Act (GLBA), the federal banking agencies have adopted regulations concerning consumer protection in the sale of insurance by institutions and thrifts. The regulations, which include the FDIC’s Part 343, address matters that are the responsibility of the banking agencies to oversee and not the responsibility of state insurance departments.
Part 343 applies to the institution as well as other parties that offer insurance or annuities on institution premises or on the institution’s behalf. Under Part 343, a party offers these products on behalf of the institution when:
• it represents that it is doing so; or
• it pays the institution commissions for receiving customer referrals; or
• documents that evidence the sales transaction refer to the institution.
Interagency Policy Statement
The Interagency Policy Statement contains requirements that overlap with Part 343, particularly with respect to disclosures and the circumstances under which sales and recommendations may be made. To the extent that Part 343 addresses an area, it governs. However, because variable annuities have an investment component, institutions that offer them must also adhere to the program requirements explained in the Interagency Policy Statement. In particular, an institution that offers annuities should establish policies and procedures for its sales program and offer variable annuities only when suitable for customers. A detailed explanation of the requirements of the Interagency Policy Statement is contained in the Investment Sales Procedures.