ACLI Focused On ‘The Big Picture’ When It Comes To Regulation

Industry watchers have plenty to keep their eyes on when it comes to the threat of regulation disruption.

But all of that activity, at both the state and federal levels, is seemingly trending in a very good direction, said Jim Szostek, vice president and deputy, retirement security, for the ‎American Council of Life Insurers.

Szostek is part of the all-ACLI panel discussion, "The Big Picture: Regulatory and Legislative Landscape in 2021" on Monday afternoon at the virtual Life Insurance Conference from LIMRA, LOMA and LL Global.

The direction is toward best-interest rules for annuity sales -- a compromise between the tough fiduciary standard that registered investment advisors adhere to, and the suitability standard that regulators say is no longer sufficient.

States are very quickly adopting best-interest rules based on a model regulation put forth by the National Association of Insurance Commissioners. There remains a good possibility that as many as half of the states will have best-interest rules on the books by the end of 2021, Szostek said.

The states that have adopted annuity standards along the NAIC’s model include:

• Arizona: in effect
• Arkansas: June 29
• Delaware: Aug. 1
• Idaho: July 1
• Iowa: in effect
• Michigan: June 29
• Nebraska: in effect
• North Dakota: Jan. 1, 2022
• Ohio: Aug. 14
• Rhode Island: April 1

Harmonization The Goal

ACLI is among those supporting harmonization of rules as a big-picture goal. Other regulators include the Securities and Exchange Commission and its Regulation Best Interest, which took effect in June 2020.

The idea is to get as close as possible to a standard that strengthened consumer protections, while remaining consistent across the many distribution and producer channels.

The NAIC model law articulates a best-interest standard through the following four obligations: care, disclosure, conflict of interest and documentation. That is very close to the SEC standard, and the Department of Labor rules promulgated by the Trump administration.

ACLI is also keeping tabs on those federal rules, which the Biden administration allowed to take effect Feb. 16. The DOL investment advice rule has two main parts: a new exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.

The Biden administration, under the direction of Ali Khawar, acting deputy assistant secretary for the Employee Benefits Security Administration, is discussing what tweaks it can make to the Trump rule to perhaps strengthen the prohibited transaction exemption that allows advisors to accept commissions for conflicted advice.

The DOL also might look to change the existing definition of fiduciary, Szostek said, and review existing exemptions that advisors use to sell annuities.

"From that interpretation that they issued, which is fairly expansive, you can see where the department might go is to try to align a rule with the the way in which they see the world as opposed to trying to make something else fit," he added.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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