The National Association of Insurance Commissioners is not sure how the Department of Labor's proposed fiduciary rule would affect insurance markets but NAIC officials said they are talking with the Obama administration to find out.
The NAIC said in a statement that it is engaging the DOL and the Obama administration “to further discuss and understand how they would work from an insurance perspective and any potential implications they may have on insurance companies and the products they offer.”
The NAIC added, “We are continuing to discuss the rule and to have conversations with DOL and affected stakeholders to understand and analyze possible implications.”
The statement was a response to a request for comment from InsuranceNewsNet about insurer, advisor and agent complaints that a full reading of the 900-page DOL proposal shows that it is a potential encroachment on state authority to regulate insurance. InsuranceNewsNet was asked to attribute the statement to an NAIC spokesman.
“We have been analyzing the Department of Labor’s proposed rules to expand the definition of 'fiduciary' to a wider range of financial advisers to ERISA retirement plans and IRAs,” said the NAIC.
The proposed rules are “comprehensive and complex,” and would make significant changes to retirement plan fiduciary rules that have been in place for almost 40 years, the NAIC said. The commissioners have been asked to push back against the proposal, by doing things such as enlisting congressional and state government support, but the NAIC said the federal government has had the authority to oversee the sale of some annuities depending on the product and the person selling the annuity.
The NAIC spokesman acknowledged that the “new rules are no doubt significant and expand the interpretation of the definition of ERISA fiduciary to a broader group of individuals, depending on the nature of the annuity product or person selling the annuity.”
But, the spokesman said that it is “useful to note” that the federal government has some regulatory oversight on that sale today.
The spokesman explained that the Securities and Exchange Commission is involved in the regulation of variable annuities and investment advisors (who can also be insurance agents), and that the Financial Industry Regulatory Authority is involved in the regulation of the conduct of broker/dealers -- who can also be insurance agents.
The NAIC spokesman added that the “DOL for almost 40 years have regulated those involved in the provision of plans under ERISA (which could include individuals licensed insurance agents) and subjects them to a fiduciary standard.”
That is also why the industry is spending a lot of resources in crafting comment letters on the proposal, along with legal and legislative initiatives. The comment period closes July 21.
“It will require a costly ‘compliance’ structure imposing new duties on insurance agents, brokers, and the insurers they represent,” according to a new paper by James F. Jorden, of Carlton Fields Jorden Burt.
Another reason for the concern is the “best interest contract” provision that the proposal envisions as ensuring that agents, advisors and brokers can receive commissions for selling into retirement plans.
“Complying with the BIC exemption is going to be a little bit harder for broker-dealers and insurance agents,” according to Stephen P. Wilkes of the Wagner Law Group.
“The disclosures are going to be burdensome because I think it will be difficult to eliminate all the incentives and programs that are typically a part of the pay grid or compensation formula used to pay advisers and agents in a manner that fits under the exemption,” Wilkes said. “So, I know the insurer industry will be speaking out very strongly on this aspect of it.”
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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