February, 2000

Good News From IMSA!

By Kenneth J. Kalis, CLU  

Kenneth J. Kalis, CLU, is a Qualified IMSA independent assessor and President of the Kenneth J. Kalis Company of Gainesville, -Florida. After a 21-year career with The Prudential, Ken began his IMSA involvement in 1994, pilot testing the IMSA questionnaire. Nationally recognized as a writer and speaker on IMSA, Ken was on IMSA’s teams that created the IMSA Assessment Handbook and the IMSA Assessors’ Training. The Kalis IMSA team has worked with over 30 companies on their self-assessments and independent assessments and certified 25 companies for IMSA membership. Ken was again asked by IMSA to be part of the teams updating the IMSA Assessment Handbook and developing stronger standards for the 2001 assess­ments. He can be reached at 352-375-4111, e-mailed at kenkalis@gmail.com or through this web site.  

There have been literally hundreds of changes to the IMSA process that are reflected in the draft of the revised Assessment Handbook. And that process is not yet complete. Copies of the Handbook were mailed out to all IMSA companies in December for review and comment by January 14. IMSA is now processing that feedback. At a meeting on February 1 we finalized the key changes so that the Handbook can be presented to IMSA Board in late March, While changes are of an organizational and relatively minor nature, there are three substantial changes:

•  Continuous compliance. Those of you who are IMSA members know that the INDEPENDENT ASSESSOR REPORT is “based on policies and procedures in place as of the Report Date.”

Current IMSA member companies seeking membership renewal can be expected to demonstrate that policies and jrcocedures have been adopted and operational during the previous membership period. The independent assessor should seek reasonable assurance that the

company has exercised efforts consistent with IMSA’s Principles and Code of Ethical Market in the operation of the policy or procedure during the prior membership period to determine that systemic weaknesses do not exist. The independent assessor will be asked to exercise professional judgment to assess whether the operation of policies and procedures during the previous membership period, in conjunction with evidence of newly adopted policies and procedures, will support an application for membership renewal. Page 27 Revised IMSA Assessment Handbook, Draft 12/99

 What this means from an Independent Assessor’s stand­point is that we will have to make sure your company can show that you have been in compliance with the 24 IMSA questions throughout the 3-year period of your membership, not just on the date of the independent assessment (which was the case last time).

 The second challenge is

•  Ongoing monitoring. As you know, there are three aspects that must be satisfied in order to arrive at a “yes” answer to each of the 24 questions (formerly 27).

One of the accomplishments of the Assessment Handbook Committee has been to streamline the process and eliminate some redundancies by combining some questions and reorganizing the indicators. 

My experience has been that most companies do very well in having an APPROACH, not quite as well in demonstrating DEPLOYMENT, and not quite as well again in the MONITORING aspect.

 IMSA has addressed this issue by beefing up Principle 6 —System of supervision and review.

Companies must have a monitoring system as a minimum standard that reasonably assures the compliance complies with Principle 6, Code D. The monitoring system should include elements that will permit the company to review its home office and field sales and marketing practices to determine whether they are consistent with the company’s policies and procedures, the Principles and Code of Ethical Market Conduct, and applicable laws and regulations. Companies and independent assessors may employ a variety of testing methods to provide reasonable assurance that compliance monitoring activities provide meaningful information regarding the company’s sales practices that is used to take corrective action, if warranted, at the home office and field distribution levels. Page 100 Revised IMSA Assessment Handbook, Draft 12/99

 What does this mean in plain English? You have to make sure you have an ongoing monitoring/testing system in place. This adds a dimension of formality to the process, and encourages the company to use standardized business metrics for monitoring rather than anecdotal or ad hoc information, such as complaints.

•  Managing contractual relationships. IMSA is an organization that embraces a wide diversity of company structures and distribution systems. Indeed, IMSA has drafted its standards with sensitivity in this area to make sure the unique needs of each distribution system are recognized. These standards include the recognition that some companies may delegate supervision, training or other responsibilities to third parties. IMSA’s third challenge is in this area:

Similar to the supervision requirements under Principle 6, Code B, responsibility for monitoring sales and marketing activities may be assigned to a variety of individuals within the company or may be delegated to independent intermediaries. Ultimate responsibility to verify whether monitoring has taken place must be borne by the member company. The company should review its monitoring system to reasonably assure it is operating properly and providing relevant, accurate data. Accordingly, in those instances in which the obligations are delegated to independent intermediaries the company must continue to monitor the performance of those obligations.

 In short, companies are going to have to upgrade from the earlier standard and demonstrate to the independent assessor that someone in the company is monitoring the compliance of the independent intermediary with the terms of the contract.

 2 Description of the Standards Raised

 First of all, IMSA has made some significant steps for­ward in becoming a more credible organization. My hope is that some day the IMSA logo will have such an impact that seeing it will cause regulators to say, “We don’t have to do a market conduct exam on that company this year. They’ve just received their IMSA renewal.”

 Of course, that isn’t going to happen over night. But IMSA is working closely with the regulatory community on a day-to-day basis to enhance its reputation and credentials, and they have made some key steps forward with the revised Assessment Handbook.

  •  This is something that regulators are looking for because it is reflective of a more rigorous process. We will get into more specific detail on this later in this article.

•  Monitoring system. The increased emphasis on systematic, on-going monitoring can be seen in a more strongly worded question 6.4:

“Does the company have policies and procedures that require a monitoring system to provide reasonable assurance that the company’s home office and field distribution sales and marketing practices for covered products comply with the Principles and Code of Ethical Market Conduct and applicable laws and regulations?”

vs. the 1997 version

“Does the company have policies and procedures that require internal auditing and monitoring of information related to the sales practices of its distributors and employees involved in the sales process?”

Long-Term Care products. Beginning with the 2001 assessments, long-term care products will also be covered. The same standards, questions and indicators that apply to individual life and annuity products will apply to long-term care products. IMSA is planning to develop and deliver specific training on this later this year (dates are set for April 12 and 13 in Washington, April 25 and 26 in Chicago, and May 2 and 3 in Los Angeles). No company can be recognized by IMSA for its long-term care product before 2001 or before it gets its life and annuity products recognized.

 3New Testing Requirements

 There have been some anecdotal incidents reported to IMSA that gave the impression that Independent Assessor’s weren’t doing enough “testing.” I believe that there was a misunderstanding of the word “testing” in these communications.

 What do we mean by testing? The Handbook lists five key types:

 •  Testing by Companies. The INDEPENDENT ASSESSOR Standards Committee was charged with looking into the testing issue and making recommendations on how to proceed. We didn’t think that hit or miss testing by the Independent Assessor added much value to the process while it would substantially increase the cost of the independent assessment. In view of this, we recommended that the companies be encouraged to conduct rigorous testing for each question so that the Independent Assessor can

 •  Testing by Independent Assessors. IMSA has asked the INDEPENDENT ASSESSORS to take a more rigorous approach to testing and to indicate, for each of the 24 questions, which of the above testing methods has been used to validate the answers. One outcome of this could be an expanded Independent Assessor’s Report in which we will have to indicate which testing method was used for each of the 24 questions. . This could result in added complexity and cost to the independent assessments, but my-hope is that companies will rise to the occasion and install all the testing that is needed.

4 What Companies Can Do to be Proactive

GET STARTED NOW!! Some companies have already gotten started. Some have done this by participating in the IMSA committees, something I urge you strongly to do. This is important not only so that you keep informed as to new developments, but also so that you let IMSA know YOUR concerns and circumstances for your company and your distribution systems.

•  Establish compliance baselines. In order to show improvement, you have to have a starting point. I recommend you use your previous IMSA self-assessment report since it contains all the policies and procedures that support IMSA in your company. I also recommend you put this material into a format that can be easily updating while maintaining your historical record of progress. Doing this electronically saves time in the long run, but will take some extra time to get you up and running. Whichever approach you take, remember, you are going to have to show compliance throughout the membership period, so make sure that you’ve got all three years covered.

 •  Conduct an Interim Assessment. If you haven’t been on top of this, you may want to have your Independent Assessor conduct an Interim Assessment to help you find out where you are, what’s been done since your last assessment, and what action plans should be in place to help you qualify for renewal membership. What should be the key element of an interim assessment? Here are a few:

1.  To review the self-assessment reports for the distribution channels to validate that they are still in compliance with the IMSA standards.

2.  To affirm ownership and responsibility for each of the policies and procedures supporting the answers to the IMSA questions and their relevant indicators.

3.  To verify the ongoing monitoring aspects for each of the IMSA questions and determine if they are operating satisfactorily.

4.  To review the documentation supporting the IMSA self-assessment reports to see if it needs to be updated or supplemented. -

5. To evaluate and verify any progress made towards implementing the recommendations made by the IMSA independent assessor.

6.  To translate the paper self-assessment reports into electronic format and scan into this the relevant supporting documentation.

7.  To prepare an action report for the IMSA Assessment Team summarizing the findings and making recommendations for bringing all policies and procedures into compliance and for implementing any recommendations made by the IMSA independent assessor that have not been put into place yet.

8.  To make recommendations on how to prepare each distribution channel for renewing its IMSA membership in the coming year.

 •  Ongoing compliance reviews. Some companies have been keeping their IMSA self-assessment reports up, to quarterly reviews. This, in my opinion, is the best way to assure yourself that you are right on top of things and are fully prepared for renewal membership. The sooner you get started on this, the better your monitoring results will be. 

Some of the items to cover?

1.    Put together the IMSA 2001 Team, a self-directed work team that will manage the IMSA process on an on-going basis.

2.    Hold the first meeting of the IMSA Management Team to set plans for the year, develop a schedule.

3.      Communicate your continuing commitment to IMSA and ethical market conduct through a company-wide statement from your president.

4.    Set priorities, and assign responsibilities for updating documentation to the appropriate process owners.

5.    Review the recommendations for improvement made by your independent assessor or your own management people and develop action plans for policies and procedures you have in place to answer the 24 IMSA questions.

7.    Identify new people, including those new to their cufrent positions, who need to be trained in IMSA’s Principles and Code for questions 2.3 and 6.3 and schedule training.

8.    Identify those new people to whom communications on policies on fact~finding responsibilities (1.1), company support for the Principles and Code (1.4) and fair competition (3.1) need to be communicated and prepare appropriate acknowledgement mechanism.

9.    Ask your independent assessor for an IMSA update and incorporate relevant developments into schedule for reassessment.

10.  Conduct the necessary training for new people on questions 2.3 and 6.3.

11.  Execute the communications necessary to comply with questions 1.1, 1.4 and 3.1.

12.  Update self-assessment report as necessary, including updated documentation. Also update for any changes in process owners.

13.  Have independent assessor review progress to date and discuss plans for the next year.

14.  Consider any new products introduced since the company gained IMSA membership and assign team members to each to assure compliance.

15.  Designate someone to oversee the integration of your company’s Long Term Care products into the IMSA process.

16.  Get copies of the IMSA 2001 assessment handbook.

17.  Discuss plans for the upcoming self-assessment. Identify participants and necessary resources and work on a communications document for distribution to the whole organization.

18.  Have your independent assessor discuss the upcoming self-assessment and identify any potential gaps as well as training needs.

19.  Schedule and conduct necessary training for members of the self-assessment team and other people who will be involved in the process.

20.  Get cost estimates and detailed plans about the independent assessment from the independent assessor.

21.  Kick-off the self-assessment process. Begin by working with the independent assessor to select the appropriate indicators.

22.  Begin work to close potential gaps. Pay special attention to the continuous monitoring throughout and the addition of long-term care products.

23.  Assign specific individuals to close the gaps. Ask the independent assessor for input.

24.  Draft responses ~to the questions and have the independent assessor review them.

25.  Gather supporting documentation and other materials.

26.  Identify any training and communications needs and implement them.

27.  Schedule the independent assessment and set up the space for it.

28.  Prepare process owners for interviews by the independent assessor.

29.  Hold a final team meeting to make sure all is in readiness.

30.  Begin the independent assessment and prepare for process renewal.

31.  Process papers for renewal of IMSA membership.

In 1997, achieving IMSA membership was an EVENT for companies, characterized by lots of start-up efforts and a monumental effort to gather docu­mentation and put everything together. Unfortunately, qualifying for renewal membership in 2001 is going to be another major EVENT for companies who haven’t been keeping their IMSA assessments up to date. By implementing these changes, and making IMSA compliance monitoring an ongoing part of your business, you can take much of the angst and suffering out of IMSA assessments and, more importantly, position your company for continuous improvement. I’m hoping that for many companies IMSA renewal membership will be a NON-EVENT in 2004, because everyone will have been doing such a good job with the ongoing monitoring.

 5 How to Conduct onsite Training Sessions

In order to get started on this track, you are going to have to train the people you want involved. IMSA will be offering some training sessions in April and May and you should certainly send someone there, but many of you will want to get started before then. I suggest three key steps for proceeding.

•  Identify key People for training. Of course you will want to involve your compliance people. Depend­ing upon the individual’s expertise, you may even want to have your compliance officer lead the train­ing. Then you will need to train the people in the areas covered by the IMSA questions, namely, the marketing or agencies areas, law, advertising, actuar­ial, complaint resolution and internal auditing. Make sure you have all the people who will be living with this process on a day-to-day basis, but limit your class size to 15.

•  Use IMSA Revised Assessment Handbook. The Assessment Handbook contains all you will need to know about conducting any IMSA assessment. Make sure you go through the "Getting to Yes" section so that your people understand the process.

Then spend some extra time on Principle 6 where the most significant changes and improvements to the process are covered. Get into the case studies and show the people what you need to get a “yes” answer. But don’t be intimidated by them, Tailor your answers to meet your Independent Assessor’s standards. Be sure to involve your Independent Assessor, as ultimately the Independent Assessor will be the one setting the standards for how much documentation and testing you will need to satisfy the IMSA standards.