Force of Change: IMOs Must Evolve Under Increasing Regulatory Pressure

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They are called by many names and acronyms independent marketing organizations (IMO), field marketing organizations (FMO), national marketing organization (NMO) and one that has been around the longest – managing general agency (MGA). However, no matter what you call them, not many could have imagined how the role of third-party insurance marketing organizations would evolve throughout the history of the insurance industry.

Over the years, IMOs have evolved into a comprehensive resource for retirement products and servicing. What once was considered a resource to expand an insurance company’s reach into new markets is now considered an integral part of the sales process. The burden of responsibility on the IMO is even heftier with the complexity that comes with new product design and regulatory changes.

As the insurance industry continues to mature and independent insurance producers gain market share, we can only assume that the IMO design may come under regulatory scrutiny. At North American Company for Life and Health Insurance (“North American”), the company has considered this probability and is taking proactive steps to help IMOs prepare by promoting that good business practices are in place now.

North American truly considers the IMO a business partner and recently initiated a thorough, in-person business practice review with top IMOs. The review provides a great opportunity to collaborate with IMOs.

The purpose of the review is multi-pronged. The meeting is designed to further the relationship, help understand how the IMO positions North American products, share the company’s views on compliance and regulatory matters, and learn what more can be done to support the IMO from a compliance and regulatory standpoint. North American informs the IMO before the visit about the meeting and requests specific documents to review prior to the meeting.

During the meeting, compliance and regulatory matters are discussed and questions on how to handle certain compliance functions are covered. The company inquires whether the IMO has policies and procedures to cover things such as privacy, advertising review, and complaints. During the review, issues can be identified for further review and discussion.

And the discussion doesn’t stop there. The meetings include a comprehensive review of the IMOs organizational structure, marketing and business plan, advertising strategy, and training, and education plans. The meetings also serve as a way to reinforce and discuss compliance procedures, memos to the field, training, and suitability procedures.

While the company sends out a large amount of communication on changes and requirements, it’s important to understand how the IMOs help to get the word out to their agents to meet requirements. The company finds the meetings to be an excellent source of constructive feedback. In the end, the collaboration makes for a better relationship and a clearer understanding of expectations.

North American also takes the time to review and discuss annuity suitability and how the process works. Suitability, which remains a hot topic, will continue to progress and become more intricate in process and compliance.

According to Iowa Insurance Commissioner, Susan Voss, “As baby boomers enter retirement, the importance of annuity suitability will remain on the forefront of the annuity industry. IMOs will play a critical role in ensuring producers understand the importance of suitability and that retirees and pre-retirees are given appropriate annuity recommendations.” As states evolve and vary in regulations and requirements, insurers will need to work with IMOs to manage this continuing regulatory challenge.

How does the IMO view these challenges? Brian K. Williams, COO of FIG Marketing Group, said, “IMOs are facing a higher standard of compliance by insurance carriers and a larger degree of expectation from their agents to educate them. While the IMO isn’t a product manufacturer, their role as a service provider and marketing innovator requires a greater sense of urgency with compliance issues.”

Williams continued, “The most complicated issue stems around the multitude of evolving requirements from the insurance carriers. Because there isn’t a SRO for the insurance industry, many carriers vary on their compliance requirements. It is cumbersome for the IMO to normalize all of the individual carrier’s requirements into a baseline of standards. Clearly sales practices, advertising, and suitability remain hot button items for regulators. However, I think many will agree that providing guidance on such issues will only enhance the strong message of principal protection that our products provide. Too often negative attention has been given to such issues and has overshadowed the good work of compliant producers appropriately using fixed indexed annuities.”

Ultimately, in a constantly evolving compliance world, IMOs and producers alike should adopt sound compliance practices. “In the end,” said Williams, “It’s all about doing what’s best for the clients.”

Some IMOs have evolved to the point of having their own, in-house compliance resource and take on training first hand.

Sarah Mlynek, Director of Compliance for Creative Marketing said that her company is positioned to support producer training initiatives “one hundred percent.” The company believes that by enhancing the producer’s knowledge of issues surrounding suitability and by increasing their knowledge of specific product features it empowers them to make recommendations to their clients that will better assist in meeting their needs and objectives.

“However,” Mlynek said, “The challenge facing producers, and particularly marketing organizations, is the varying array of requirements surrounding training by states and individual insurance carriers. At Creative Marketing, we have implemented a system to navigate the requirements to ensure our producers have accurate, up-to-date information on what training is needed in order to stay in compliance and keep their businesses running smoothly. We appreciate the work NAFA does to promote the uniform adoption of training requirements by states and by encouraging insurance carriers to align their best practices.”

What’s Next for the IMO?
Insurers have always placed a heavy focus on advertising compliance and as the rules continue to change, this focus will remain sharp. But a newer component will add another layer of complexity. As social media becomes the norm in communication, insurance companies will have to be prepared to support the IMO with tools that will continue to meet changing compliance requirements. The reality is social media is not just for kids; it’s become generational. People of all ages are using social media everyday and insurers need to set a strategy to help IMOs with this wave in the sales evolution. Customers are using social media to research product, and are getting referrals about the companies they need to do business with. This is an important source of new customers, customer retention and cross sales, and one that insurers and agents can’t ignore. North American and other insurance carriers are working through the compliance issues that social media may create and partnering with IMOs to ensure the advertising guidelines and social media policies are adaptive and followed.

As the independent agent channel continues to grow in market share, IMOs need to realize that they may in turn become the subject of regulatory inquiry. North American is looking to help IMO partners prepare for a day when a threat of a possible regulatory inquiry is no longer a threat but a reality. No one knows for sure if regulators will ever do a full market conduct exam on an IMO, but they should run their business as if it may happen and take steps to be prepared if it in fact does.

At the end of the day, the IMO world is evolving rapidly. Many are entering into the securities distribution space through RIA ownership or Broker Dealer ownership bringing in more complexity and compliance obligations to their day-to-day practices. IMOs today face a lot of challenges: fierce competition, low interest rates and compressed margins, increasing regulatory burdens, and with that, increasing compliance expectations. Insurance companies need to leverage their knowledge base and find ways to help IMOs navigate the compliance component. Through this process, companies can further enhance relationships and develop long-term business partnerships.

North American Company for Life and Health Insurance is a member company of Sammons Financial Group. Sammons Financial Group is comprised of Midland National Life Insurance Company, Sammons Annuity Group (a division of Midland National), North American Company for Life and Health Insurance®, Sammons Securities Company®, LLC., Sammons Retirement Solutions, Inc.SM and Sammons Financial Network, LLCSM.


Nick Gerhart is Vice President of Compliance and Regulatory Affairs for North American Company for Life and Health Insurance, managing compliance requirements and relationships with government and regulatory groups. He started his career as a private-practice attorney, moving on to manage compliance, market conduct, and regulatory affairs for an Iowa insurance company. Nick serves on the board of the National Association for Fixed Annuities and is active in the American Council of Life Insurers. In July of 2011, he was awarded National Underwriter’s Elite Award for Regulatory Advocacy. Recently, he was named the new Iowa Insurance Commissioner and will assume full responsibilities at the end of the year.

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