‘Best Interest’ Is Sometimes Best Left Undefined, Regulator Says

BALTIMORE -- There is a good reason why state insurance regulators are not keen on spelling out a "best interest" standard in an annuity sales rule, said Matthew Gendron, counsel for the Rhode Island Division of Insurance.

And it has nothing to do with fear of a strong standard, he added. Gendron is on a National Association of Insurance Commissioners' working group that came to tentative agreement on a best-interest-like rule for annuity sales. Except those words are not used.

"We don't have any case law in Rhode Island determining what (best interest) means," Gendron said, adding that other states do have legal precedents. "(Best interest) could be hijacked by a local use and history of that term."

Gendron spoke during a Thursday afternoon session on best interest and suitability during the 2019 Retirement Industry Conference.

Even if regulators define in their rules what "best interest" means, that is no guarantee that a judge is going to accept it, he added.

"Should the courts just ignore our definition and go with that history anyway?" he asked.

The working group is creating an annuity sales model law to send to the 50 states for adoption. Both regulators and industry executives are hoping to avoid a "patchwork" of standards that vary greatly from state to state.

Gendron was joined on stage by Jason Berkowitz, chief legal and regulatory affairs officer, Insured Retirement Institute. The pair are usually on opposite sides of the debate over sales standards. But they agreed that state regulators should proceed in lockstep with the Securities and Exchange Commission's Regulation Best Interest, which applies to brokers.

"If the SEC moves soon, then I think we'll move soon," said Gendron, who held up 140 pages of comments the working group has received.

During working group meetings and conference calls, Gendron and Rhode Island have frequently sided with New York, which favors a tougher standard.

"New York has put all their ideas on paper and some of them have been voted on and voted down," said Gendron, adding that there are more to come. "And we'll probably be on the losing side of those as well, but that's OK."

Still, he said, it is likely that the NAIC annuity sales model will undergo several changes.

The debate between conservative states such as Iowa and Idaho and more liberal states such as New York and California has often left working group members far apart. But Berkowitz reminded attendees that the regulators do not have the final say.

"If the regulators, at the end of that time, can't take it back to their legislators and get it through their legislatures, then it was a waste of time," he said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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