Members of the National Association of Insurance Commissioners Life Insurance and Annuities Committee approved proposed revisions to the NAIC’s Suitability in Annuity Transactions Model Regulation No. 275 during a conference call meeting on Dec. 30.
The proposed suitability model revision would provide enhanced consumer protections requiring agents, brokers and others selling annuities to act in the best interest of the consumer, and to disclose potential conflicts of interest.
“This important proposal will significantly enhance protections for Americans planning and saving for the future,” said Bruce Ferguson, SVP, State Relations for the American Council of Life Insurers. “It reflects regulators’ deliberative and thoughtful approach, including receiving input from consumer and industry groups such as ACLI.”
Ferguson said the proposal provides a clear, objective best interest standard for recommendations of annuities that aligns with the SEC’s Regulation Best Interest.
“Together, these two initiatives will give clarity and significantly strengthen protections for consumers seeking guaranteed lifetime income in retirement through annuities. They also safeguard consumers’ access to an important marketplace for their financial wellbeing,” Ferguson said. “Retirement savers should be confident that financial professionals are acting in the best interest of consumers. The proposal the committee approved today achieves this goal and will be more effective than individual state fiduciary proposals that miss the mark on protecting consumers.”
The next procedural step before individual states may consider it for adoption is approval by the full NAIC (Executive Committee and Plenary). The Insured Retirement Institute (IRI) also chimed in on the issue after the committee vote, and expressed optimism that it will occur in early 2020.
“This revised model regulation will advance consumer protection with a best interest standard for insurance producers,” said Jason Berkowitz, IRI Chief Legal and Regulatory Affairs Officer. “Throughout this process, insurance regulators at NAIC working group and committee level have worked in an open, transparent manner to craft a model that is generally consistent with Regulation Best Interest and the right approach to provide strong consumer protection.”
Regulation Best Interest is a federal standard of conduct rule finalized by the U.S. Securities and Exchange Commission (SEC). This regulation takes effect on July 1, 2020.
The NAIC proposal also includes IRI-recommended language to provide a safe harbor for all insurance producers who are subject to, and actually comply with, equivalent or greater standards such as Regulation Best Interest or the Investment Advisers Act. This will avoid duplicative compliance requirements for those who already comply with rigorous standards.
“We are optimistic that the NAIC will approve this important revised model regulation,” Berkowitz said. “If approved, IRI is prepared to work immediately with states to quickly implement this important new consumer protection regulation.”
Under the proposed standard, an annuity agent or broker would have to try to get more detailed information about an annuity prospect’s finances, to make sure that the products recommended would fit the prospect’s needs. But the proposal would allow agents and brokers to continue to use commission-based compensation arrangements.
Many in the industry believe an updated NAIC model would protect life insurers and producers against federal or single-state proposals that would expose them to more litigation risk or seek to ban use of commissions.