Retail Insurance Sales

Question 1

What procedures should bank’s be examined under if they offer Annuities?

Answer 1

The sale of variable annuities is supervised as both an insurance and an
investment activity. Consequently, institutions that offer these products
should be examined under both these procedures and the Compliance
Examination Procedures and Supervisory Guidance For Retail Investment
Sales Activities (Investment Sales Procedures).

Question 2

The procedures for retail insurance sales apply to what activities?

Answer 2

retail sales, solicitation, advertising, or offers of any insurance product or annuity to a consumer by a FDIC supervised depository institution.

This does not include the sales of insurance or annuities as part of a bank’s trust or fiduciary activities.

Question 3

What is a consumer?

Answer 3

a consumer is an individual who purchases, applies to
purchase or is solicited to purchase any type of insurance product to be
used primarily for personal, family, or household purposes.

Question 4

What is an FDIC insured depository institution?

Answer 4

FDIC-supervised insured depository institution means any State nonmember insured bank or State savings association for which the FDIC
is the appropriate Federal banking agency

Question 5

What primary risks are addressed in Part 343 of the interagency policy statement? (2)

Answer 5

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.

Question 6

What is the FDIC responsible for overseeing vs State insurance departments?

Answer 6

FDIC: consumer protection in the sale of insurance by banks and thrifts.

State Insurance Departments: The states continue to be responsible for insurance agent and company licensing, product oversight, rates and forms, and most market conduct
regulations, which complement financial solvency regulations, regardless of whether an institution is involved. Moreover, where state law provides greater consumer protection in the sale of insurance than the protection provided by the federal rules, GLBA provides that state law governs.
Decisions about which law or regulation provides greater protection are made on a case-by-case basis. The Legal Division should be consulted if
such questions arise.

Question 7

What entities does part 343 apply to?

Answer 7

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.

Question 8

Generally what requirements are contained in the interagency policy statement?

Answer 8

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.

Question 9

What should examiners consider reviewing with regard to insurance sales? (5)

Answer 9

• agreements with third parties
• sales activity volume and financial reports
• standard disclosures and acknowledgement forms
• records documenting qualification of sales personnel
• proprietary product management

Question 10

True or false:

During PEP examiners should contact state insurance officials to obtain copies of any complaint records involving the bank.

Answer 10

True. Information sharing agreements are in place with most states, and a list of contacts is posted on the National Association of Insurance Commissioners (NAIC) website.

Question 11

What should examiners review for Board and management oversight of insurance sales?

Answer 11

Consider whether the institution’s board of directors has adopted written policies and procedures for the institution’s insurance sales program. If not, are they needed? Are the policies and procedures reviewed and updated as necessary?

Does the board of directors and management receive and review sufficient information to provide appropriate direction and control of insurance sales?

Also consider third party oversight if applicable

Question 12

For retail insurance sales conducted through a networking arrangement with a third party vendor, what should examiners review for Board and management oversight? (3)

Answer 12

• The institution conducted an appropriate review of the third party’s qualifications, experience, regulatory history, financial condition, and references prior to entering into the arrangement;

• The arrangement is controlled by a written agreement that
is approved by the institution’s board of directors

• Institution management periodically monitors the third party’s compliance with the agreement.

Question 13

For third party vendors, what elements should be included in the contract between the third party and the bank?(10)

Answer 13

° Description of each party’s duties and responsibilities;

° Description of the permissible activities by the third party on institution premises;

° Controls for the use of institution space, personnel, and equipment;

° Detailed compensation arrangements for all institution and third party personnel;

° Requirement that sales representatives are appropriately trained, licensed, and qualified;

° Requirement that the third party comply with all applicable laws and regulations;

° Authorization for the institution to monitor the activities of the third party and its sales representatives and to periodically review compliance with the agreement;

° Authorization for the institution and its banking regulatory agency to have access to such records of
the third party as are necessary or appropriate to evaluate compliance;

° Indemnification for the institution for potential
liability caused by the third party’s sales activities; and

° Written employment contracts satisfactory to the institution for personnel employed by both the institution and the third party;

Question 14

What areas should examiners review as part of the Compliance program evaluation of insurance sales? (9)

Answer 14

• policies, procedures and internal controls
• sales setting
• referrals
• compensation
• sales practices
• Disclosures, advertisements, and acknowledgements
• personnel qualifications
• monitoring
• audit function

Question 15

What should examiners review regarding Policies procedures and internal controls?

Answer 15

Consider whether the retail insurance sales program’s policies
and procedures include a description of the following elements:
• Types of products sold;
• Supervision of personnel involved in sales; and
• Compliance procedures to ensure sales activities are
conducted in accordance with Part 343.

Question 16

What should examiners review regarding sales setting?

Answer 16

Is the area in which insurance is sold physically distinct from
the area in which retail deposits are taken?
• Employees do not make insurance recommendations, or
take orders for insurance products, even if unsolicited,
while located in the routine deposit-taking area. (This includes reviewing any prepared scripts on handling
deposit customers, or customers whose certificates of deposit are maturing.)

Question 17

What should examiners review regarding referrals?

Answer 17

Employees who are not authorized and qualified to sell insurance only make referrals, and do not make insurance
recommendations or take orders for insurance products. (This includes reviewing any prepared scripts on referring deposit
customers, or customers whose certificates of deposit are maturing.)
• Management and staff (including tellers and receptionists)
adhere to part 343 and the institution’s insurance sales
policy when making customer referrals.

Question 18

What should examiners review regarding compensation?

Answer 18

Compensation to institution employees for customer referrals
is a one-time nominal fee of a fixed dollar amount for each
referral, and that the compensation is paid regardless of whether the referral results in a transaction.

Question 19

What should examiners review regarding sales practices?

Answer 19

Insurance sales practices, including advertising, would not
lead consumers to believe that:

• extensions of credit are tied to the sale of insurance or annuities;
• insurance or annuities are backed by the federal
government; or
• products that carry investment risk do not do so.

The institution prohibits insurance sales practices that discriminate against victims of domestic violence or providers
of services to such victims.

Question 20

What should examiners review regarding disclosures, advertisements, and acknowledgements?

Answer 20

Standard disclosures and advertising contain at least the following minimum content required by Part 343:
• NOT A DEPOSIT
• NOT FDIC-INSURED
• NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
• NOT GUARANTEED BY THE INSTITUTION
• MAY GO DOWN IN VALUE

Where insurance is offered in connection with a credit application, standard disclosures explain that credit cannot be conditioned on the purchase of insurance from the institution or the consumer’s agreement not to purchase insurance elsewhere.

Disclosures are provided consistently with the manner and
timing requirements of Part 343.

Disclosures are understandable and meaningful, as required by Part 343.

The institution obtains the customer
acknowledgement of
receipt of disclosures as required by Part 343.

Question 21

What should examiners review regarding personnel qualifications?

Answer 21

Insurance sales employees and management are qualified
(appropriate licensing, training, and/or experience) to conduct
their authorized duties.

The institution’s insurance sales training materials
appropriately cover the requirements for referral and sales
activities, including any appropriate and inappropriate
customer referral activities.

Question 22

What should examiners review regarding monitoring?

Answer 22

Does the institution conduct monitoring of its retail insurance
sales program and that of any third party? Does the monitoring
include sales practices, the referral process, the manner and timing of disclosures, and customer acknowledgement of
receiving disclosures?

Does the institution review customer complaints to identify
compliance issues?

Question 23

What should examiners review regarding audit function?

Answer 23

Consider whether the institution’s audit program includes its
retail insurance sales program, including third party activities,
and assess the audit program’s effectiveness.

Question 24

What should examiner consider when determining if an expanded review should be conducted?

Answer 24

After completing the assessment of the compliance management system, examiners should document their
conclusions as to whether risks in the retail insurance sales
program area are adequately managed by the institution, as
well as their responses to each of the following Decision Factors:

1. Do the board of directors and management provide
   effective oversight of the retail insurance sales program?
2. Are policies, procedures, information systems, training, and licensing adequate for such sales activities?
3. Does the institution adequately monitor customer referral
   and insurance sales activities?
4. Does the audit function include the insurance sales
   program, and is it adequate?

Based on the conclusions and responses to the above
questions, examiners should determine the extent of transaction testing or file review necessary to complete the compliance examination. If such review is deemed
appropriate, examiners should pull a sample of accounts and/or files and use the Expanded Analysis procedures

Question 25

When should examiners conduct an expanded analysis?

Answer 25

The examination procedures in this section should be used
when examiners identify material weaknesses in the
institution’s compliance management system that require
further review to complete their assessment and to determine
the institution’s compliance with part 343. The entire set of
expanded procedures should not be applied automatically.
Examiners should use only those expanded procedures that
address specific areas of significant risk, weakness, or
supervisory concern.

Question 26

What areas can be reviewed under an expanded analysis? (6)

Answer 26

• Disclosures, notices, acknowledgements, and advertisements
• personnel qualifications
• sales setting
• compensation
• monitoring
• sales practices

Question 27

What should examiners review regarding disclosures, notices, acknowledgements, and advertisements when conducting an expanded analysis?

Answer 27

Sample customer account files to review disclosures and
written acknowledgments, including those incorporated into
credit applications. Review all advertising and promotional materials, including
the text of prepared scripts (telemarketing and platform).

Question 28

What should examiners review regarding personnel qualifications for an expanded analysis?

Answer 28

Sample sales representative personnel files to determine whether they have the appropriate licenses and training, and to
review their regulatory histories.

Question 29

What should examiners review regarding sales setting for an expanded analysis?

Answer 29

Determine that the retail insurance sales setting is physically distinct from the retail deposit area (visit additional sales locations when practical).

In those instances where there is limited space in the institution, determine that signage and other techniques are used to clearly distinguish the retail insurance sales setting
from the retail deposit area to avoid the potential for customer
confusion.

Question 30

What should examiners review regarding Compensation for an expanded analysis?

Answer 30

Review management reports, sales reports, and a sample of
employee insurance sales compensation records to verify that
customer referral fees are paid as a one-time nominal fee of a
fixed dollar amount for each referral, and that the referral fee
is paid regardless of whether the referral results in a
transaction.

Question 31

What should examiners review regarding monitoring for an expanded analysis?

Answer 31

Sample customer account files and evaluate the effectiveness
of the institution’s monitoring at identifying and eliminating
documentation deficiencies.

Review customer complaints and consider whether the
institution addressed them adequately and used them to detect
potential compliance breakdowns.

Question 32

What should examiners review regarding sales practices for an expanded review?

Answer 32

Review sales records to ensure that only licensed personnel

sell insurance.