The National Association of Insurance Commissioners (NAIC) gave final approval Feb. 13 to a revised model regulation that sets the rules that insurance producers must follow when recommending annuity products to their clients.
The move clears the way for states to now adopt the model regulation into their own insurance regulations, something insurance industry advocates are keen for states to do.
Both the Insured Retirement Institute (IRI) and the American Council of Life Insurers (ACLI) released statements supporting the NAIC’s approval of revisions to the Suitability in Annuity Transactions Model Regulation (#275), which occurred during a meeting of the NAIC Plenary in Washington, D.C.
The revisions clarify that all recommendations by agents and insurers must be in the best interest of the consumer and that agents and carriers may not place their financial interest ahead of in the consumer’s interest in making the recommendation. The model now requires agents and carriers act with “reasonable diligence, care and skill” in making recommendations.
“These changes underscore the commitment of U.S. insurance regulators to protecting consumers purchasing annuities,” said Ray Farmer, NAIC President and South Carolina Insurance Director. “Nearly every state has adopted the model, which has been protecting consumers for 15 years. I encourage my colleagues to work with their state legislatures to pass these updates to provide even stronger protection.”
The revisions incorporate a “best interest” standard into the model revisions that require producers and insurers to satisfy requirements outlined in a care obligation, a disclosure obligation, a conflict of interest obligation, and a documentation obligation. The model revisions also include enhancements to the current model’s supervision system to assist in compliance.
ACLI President & CEO Susan Neely says the revised model marks a big step forward toward making sure consumers receive strong, harmonized protections when receiving financial guidance.
“The NAIC’s Suitability in Annuity Transactions Model Regulation makes sure that consumers receive better information, in plain English, to help them make informed decisions, while preserving access to valuable financial services. And it brings the regulation in closer alignment with the SEC’s Regulation Best Interest,” Neely said. “Now, the American Council of Life Insurers and our allies will encourage state regulators and legislatures to adopt the NAIC model with the goal of creating a harmonized national standard of care.”
Neely said making the NAIC model the law of the land in the states is critical, and that a dozen states or more could adopt it in 2020.
“The more states that enact a harmonized standard of care, the better off consumers will be. All without disenfranchising middle- and working-class families who want access to sound, transparent financial guidance that doesn’t impose mandatory minimums that are way beyond their budget,” Neely said. “It’s time to roll up our sleeves and cement a strong, harmonized standard of care for consumers in place.”
In affirming its support for the revised model, IRI says it is consistent with the U.S. Securities and Exchange Commission’s Regulation Best Interest (Reg BI), which companies must comply with by June 30.
“The NAIC model regulation is a significant enhancement to the standard that applies when producers recommend annuities to their clients,” said Wayne Chopus, IRI president and CEO. “We urge states to move quickly to adopt this new regulation.”
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, comparable or greater standards such as requirements for those who already comply with rigorous standards.
IRI said that it expects many states will be eager to adopt the new annuity model.
“Strong, consistent regulation is important to protect consumers and to preserve consumers’ choice of financial advice and products that meet their financial and retirement planning needs,” Chopus said. “We look forward to working with states to implement this important regulation.”