IX-2 Retail Sales - Insurance

IX. Retail Sales — Insurance

FDIC Consumer Compliance Examination M anu al — November 2023 IX–2.1

Retail Insurance Sales

Introduction

The following supervisory information and examination

procedures apply to retail sales, solicitation, advertising, or

offers of any insurance product or annuity

to a consumer

a FDIC-supervised insured depository institution

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 CM S

appropriately manages the risks involved in these activities,

including whether the CM S 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)

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

____________________

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).

2 In this context, 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. See 12 CFR

§343.20(d).

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 pursuant to section 3(q) of the

Federal Deposit Insurance Act (12 U.S.C. 1813(q)).

agencies to oversee and not the responsibility of state

insurance departments.

Part 343 applies to the institution as well as other p arties 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 p ay s 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.

Examination Procedures

During the compliance examination of an institution that

offers insurance products, examiners must consider these

activities when assessing the quality of the institution’s

compliance management sy stem (CM S). The specific

guidance and procedures contained in this chapter should be

used within the framework of the general compliance

examination procedures and, specifically, during the pre-

examination planning and review and analysis stages of the

compliance examination.

Examiners must determine whether the CM S appropriately

manages the risks involved in retail insurance sales activities,

4 FDIC Statements of Policy, Law, Regulation and Related Acts.

5 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.

IX. Retail Sales — Insurance

IX–2.2 FDIC Consumer Compliance Examination Manual — November 2023

including adherence to FDIC Part 343, and the Interagency

Policy Statement if variable annuities are sold. In doing so,

examiners should consider all documentation related to retail

insurance sales, including, but not limited to, agreements with

third parties, sales activity volume and financial reports,

standard disclosures and acknowledgment forms, records

which document the qualifications of sales personnel, and

proprietary product management reports.

Based on the examiner’s conclusions about the institution’s

CMS, a determination should be made about the extent of

transaction testing or file review necessary to comp lete the

compliance examination. The severity of the CM S weaknesses

and operational risk should dictate the intensity of transaction

testing. The expanded analysis should be carefully tailored to

weaknesses identified in the CM S as it relates to specific retail

insurance sales activities, focusing on those areas of the

institution’s program that present the greatest degree of risk to

the institution or to consumers.

At the conclusion of the examination, examiners should

document their conclusions about the institution’s retail

insurance sales activities in the examination work papers and

Report of Examination, as appropriate. Institutions that fail to

comply with applicable laws and regulations, or fail to

establish and observe appropriate policies and procedures

consistent with Part 343 or with the Interagency Policy

Statement when applicable, should be subject to criticism in

the Report of Examination and appropriate corrective action.

Pre-examination Planning

During the initial contact with the institution and through the

Compliance Information and Document Request (CIDR):

• identify any insurance or annuities sales activities the

institution conducts directly or through other entities on its

behalf; and

• obtain copies of relevant policies and procedures, third

party agreements, disclosures and acknowledgment forms,

advertising copy, records and reports.

In addition, state insurance officials should be contacted to

obtain copies of any complaint records involving the

institution. 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:

http://www.naic.org/state_web_map.htm.

Review and Analysis

Examiners should use the guidance below to evaluate the

institution’s CM S as it p ertains to retail insurance sales

activities to determine whether risks are adequately managed.

After completing the review of the institution’s CM S,

examiners should document their conclusions about the retail

insurance sales program area through written responses to the

Decision Factors described on page IX-2.4. The written

response should be retained in the examination workpapers. A

Job Aid is provided at the end of these procedures which may

be helpful in conducting the review.

Board and Management Oversight Evaluation

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?

For retail insurance sales conducted through a networking

arrangement with a third-party vendor, also consider whether:

• 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 and

contains the following elements:

° Description of each party’s duties and responsibilities;

° Description of the permissible activities by the third

party on institution p remises;

° 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

app licable laws and regulations;

° Authorization for the institution to monitor the

activities of the third party and its sales

representatives and to p eriodically 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

IX. Retail Sales — Insurance

FDIC Consumer Compliance Examination M anual — November 2023 IX–2.3

° Written employment contracts satisfactory to the

institution for personnel employed by both the

institution and the third party; and

• Institution management periodically monitors the third

party ’s compliance with the agreement.

Compliance Program Evaluation

Policies, Procedures and Internal Controls

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.

Review the policies and procedures, and through interviews

and observation consider the practices of the institution in the

following areas:

Sales Setting

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.)

Referrals

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.

Compensation

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.

Sales Practices

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 p rohibits insurance sales p ractices that

discriminate against victims of domestic violence or providers

of services to such victims.

Disclosures, Advertisements, and Acknowledgements

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.

Personnel Qualifications

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.

IX. Retail Sales — Insurance

IX–2.4 FDIC Consumer Compliance Examination Manual — November 2023

Monitoring

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?

Audit Function Evaluation

Consider whether the institution’s audit program includes its

retail insurance sales program, including third party activities,

and assess the audit program’s effectiveness.

Decision Factors

After comp leting 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 comp lete 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 below.

Expande d Analys is

The examination procedures in this section should be used

when examiners identify material weaknesses in the

institution’s compliance management sy stem 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.

Disclosures, Notices, Acknowledgements, and

Advertisements

Sample customer account files to review disclosures and

written acknowledgments, including those incorporated into

credit ap p lications.

Review all advertising and promotional materials, including

the text of prepared scripts (telemarketing and platform).

Personnel Qualifications

Samp le sales representative personnel files to determine

whether they have the appropriate licenses and training, and to

review their regulatory histories.

Sales Setting

Determine that the retail insurance sales setting is physically

distinct from the retail deposit area (visit additional sales

locations when p ractical).

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.

Compensation

Review management reports, sales reports, and a sample of

employee insurance sales compensation records to verify that

customer referral fees are p aid 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.

Monitoring

Samp le 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.

Sales Practices

Review sales records to ensure that only licensed personnel

sell insurance.

Documenting Examination Findings.

Findings should be documented in the workpapers and

incorporated in the report of examination as appropriate. In

IX. Retail Sales — Insurance

FDIC Consumer Compliance Examination M anual — November 2023 IX–2.5

addition, record the information in FOCUS under the tabbed

section labeled “NDP Sales” whether the institution sells

insurance (yes/no).

IX. Retail Sales — Insurance

IX–2.6 FDIC Consumer Compliance Examination Manual — November 2023

References

12 CFR 343: Consumer Protection in Sales of Insurance

Interagency Statement on Retail Sales of Nondeposit

Investment Products

FIL 61-95: Nondeposit Investment Activities

FIL 84-2001: Questions and Answers on Consumer

Protections for Bank Sales of Insurance

FDIC Consumer Compliance Examination M anual — November 2023 IX–2.7

J ob Ai ds

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

Policies and Procedures

1. Do the institution’s policies and procedures prohibit

sales p ractices which materially mislead consumers

into believing 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?

See §343.30(a) and (b)

2. Do the institution’s policies and p rocedures detail sales

employee qualification, training, licensing and

compensation practices?

See §343.60.

3. Do the institution’s policies and procedures establish

referral procedures for employees who are not

authorized to sell insurance which include limits on

referral compensation to a one-time, fixed dollar,

nominal fee that is not tied to whether the referral

results in a transaction?

See §343.50(b)

4. To the extent p ractical, do the institution’s policies and

procedures require that the area in which insurance is

sold is physically distinct from the area in which retail

deposits are taken?

See §343.50(a)

5. Do the institution’s policies and procedures prohibit

discrimination against victims of domestic violence or

providers of services to such victims?

See §343.30 (c)

Disclosures

6. Are disclosures readily understandable and

meaningful?

See §343.40(c)(5)& (6);

7. Are written customer acknowledgment forms available

for all insurance product disclosures, including those

which must be provided when credit applications are

taken?

See §343.40(c)(7);

IX–2.8 FDIC Consumer Compliance Examination Manual — November 2023

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

Disclosures—continued

8. Do disclosures contain at least the minimum required

content? “M inimum required content” means that:

• Excep t to the extent that it is not accurate,

disclosures inform customers that insurance and

annuities are:

• not deposits or obligations of the institution or its

affiliates;

See §343.40(a)(1)

• not guaranteed by the institution or its affiliates;

See §343.40(a)(1)

• not insured by the FDIC;

See §343.40(a)(2)

• not insured by or any other agency of the United

States or any affiliate of the institution;

See §343.40(a)(2) and

• are subject to investment risk, including potential

loss of principal.

See §343.40(a)(3)

9. Where insurance is solicited, offered, or sold in

connection with a credit application, do disclosures

state that the institution may not condition the

extension of credit on either:

• the consumer’s purchase of an insurance product

or annuity from the institution or any of its

affiliates

See §343.40(b)(1); or

• the consumer’s agreement not to obtain, or a

prohibition on obtaining, an insurance product or

annuity from an unaffiliated entity?

See §343.40(b)(2)

FDIC Consumer Compliance Examination M anual — November 2023 IX–2.9

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

Advertis ing and Promotional Materials

10. Are they readily understandable and meaningful?

See §343.40(c)(5)and (6);

11. Do they contain at least the minimum required

disclosures, unless they are not accurate for a

particular product? The minimum disclosures explains

that the product is

• NOT A DEPOSIT

• NOT FDIC-INSURED

• NOT INSURED BY ANY FEDERAL

GOVERNMENT AGENCY

• NOT GUARANTEED BY THE INSTITUTION

• MAY GO DOWN IN VALUE

See §343.40(c)(5)

Training

12. Does the institution’s training program cover

insurance sales? Does it offer appropriate training to

all employees and management?

See §343.60

IX–2.10 FDIC Consumer Compliance Examination Manual — November 2023

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

Monitoring

Sales Practices

13. Does the institution ensure that sales representatives

do not engage in misleading or coercive sales

practices?

See §343.30.

14. Does the institution ensure that tellers or other

employees who are not authorized or qualified to sell

insurance do not make sales recommendations or take

orders for such products?

See §343.60

Manner and Timing of Disclosures

15. Does the institution ensure that disclosures are made in

an ap p ropriate and timely way ? Does the institution’s

monitoring system ensure that:

• disclosures are provided orally and in writing

before an initial sale is completed,

See §343.40(c)(1),

• disclosures are provided in advertisements, unless

general in nature,

See §343.40(d)

• where insurance is solicited, offered, or sold in

connection with a credit application, disclosures

are provided orally and in writing when the credit

app lication is taken.

See §343.40(c)(1)

16. Does the institution’s monitoring system consider that:

• For insurance transactions completed by mail or

through electronic media, oral disclosures are not

required.

See §343.40(c)(2) and (4)(iii);

• For insurance transactions completed by

telephone, written disclosures may be provided by

mail within three business days after the sale is

completed or the credit ap p lication is taken.

See §343.40(c)(3)

• For insurance transactions completed

electronically, written disclosures may be

provided electronically, if the consumer

affirmatively consents and the disclosures are

provided in a format that the consumer may retain

or obtain later.

FDIC Consumer Compliance Examination M anual — November 2023 IX–2.11

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

See §343.40(c)(4).

IX–2.12 FDIC Consumer Compliance Examination Manual — November 2023

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

Monitoring—continued

17. Does the institution’s monitoring system ensure that a

written customer acknowledgement of receipt of all

insurance disclosures, including those which must be

provided when credit applications are taken, is

obtained:

• either when such disclosures are given or before

an initial sale is completed.

See §343.40(c)(7)

• Excep t that oral acknowledgements are sufficient

for telephone transactions, as long as the

institution maintains documentation which shows

that acknowledgements have been received and

makes reasonable attempts to obtain written

acknowledgements from consumers.

See §343.40(c)(7)(I) and (ii).

18. Do hiring practices for insurance sales personnel

include consideration of applicants’ qualifications and

experience? Does the institution ensure that:

• Insurance sales personnel are appropriately

licensed under ap plicable state insurance licensing

standards.

See §343.60.

• Agents possess current licenses for particular

products offered.

See §343.60.

• For agencies with multi-state operations, agents

possess current licenses for all states in which the

agency operates.

See §343.60.

• Institution emp loyees who sell variable insurance

products must be properly licensed and trained to

sell both insurance and securities because these

products are treated as securities for the purpose of

securities brokerage activities under thhe

Securities Exchange Act of 1934.

19. Does the institution maintain a system to periodically

confirm that employees remain in good professional

standing and are not subject to disciplinary or

enforcement action by any state insurance

commissioner, or any state or federal regulatory

agency ?

FDIC Consumer Compliance Examination M anual — November 2023 IX–2.13

Job Aid for Review of Retail Sales of Insurance and Annuities

Ye s

N/A

Comments

Audit Programs

20. Does the institution have an audit program that

includes insurance sales?

Is it sufficient given the volume and complexity of the

institution’s products, as well as the institution’s

monitoring program?

Complaint and Res olution Monitoring

21. Does the institution have a complaint resolution and

monitoring program?

Is it sufficient?

Is it being used as an early warning system to detect

potential breakdowns in compliance?

Management Oversights

22. Does the institution responsibly manage the insurance

and annuity sales compliance process?