California legislators again consider best-interest annuity sales bill

A California Assembly committee finally released a best-interest annuity sales bill favored by industry lobbyists late last week, but not everyone is happy the bill is back on track.

Senate Bill 263 passed the Appropriations Committee unanimously, and is based on the annuity sales model law put forth by the National Association of Insurance Commissioners. Forty-one states have passed the model, pushed by industry lobbyists who do not want tougher, fiduciary standards.

Those efforts in California, however, endured a roller-coaster ride as opponents on both sides battled legislators over the bill.

The bill seemed on the way to passage during the spring of 2023 – sailing through the California Senate in May with no opposing votes at the committee level or from the floor – but industry associations objected to some sections.

For example, the initial version of the California rule would have required a producer to obtain specific personal information from a client before making a life insurance recommendation.

After weeks of discussion with the office state Sen. Bill Dodd, D, who sponsored the annuity sales bill, the Independent Insurance Agents and Brokers of California and the National Association of Insurance and Financial Advisors agreed on language that will "enhance and update the existing Annuity Suitability law and make it the strongest suitability law in the country," according to a June 22 letter from the trade groups.

California consumer groups opposed

Then it was the consumer groups turn to be unhappy with the bill. As a result, it was held by the Assembly Appropriations Committee in September.

"Consumer organizations like ours were very concerned about laughably weak provisions in the bill that wouldn't protect consumers at all," said Robert Herrell, executive director of the Consumer Federation of California.

Outside of one meeting, there hasn't been any discussions on the bills since the September hold, Herrell said.

"Usually when a bill like this gets held it is a strong signal that it needs more work, in this case to enhance consumer protections," he explained. "But none of those negotiations happened."

The NAIC adopted a best-interest model in February 2020. It requires the following four obligations: care, disclosure, conflict of interest and documentation. The best-interest model was designed to harmonize with the Securities and Exchange Commission's Regulation Best Interest.

The rule specifically does not establish a fiduciary duty, nor does it ban agents from recommending products with a higher compensation structure. But the agent must be able to show that such a recommendation is in the consumer's best interest.

Fiduciary rule emerges

While the California bill languished in the Appropriations Committee, the Department of Labor produced its fourth attempt at a fiduciary standard for retirement plans rollovers.

The fiduciary proposal is 494 pages and would add significant liability to producers, while eliminating many compensation streams. The DOL received more than 20,000 comments on the proposal, which is expected to be finalized by the spring.

California consumer groups see the DOL bill as an opportunity to adopt a tougher standard in their state.

“There are so many better options to choose from than letting industry pick how it should be regulated,” said Brian Brosnahan, executive director of the Life Insurance Consumer Advocacy Center. “But instead, this weak bill puts the interests of the insurance industry first and the interests of consumers last.”

In the SB 263 passes the California Assembly it will have to go back to the state Senate for another vote since it has been amended.

InsuranceNewsNet Senior Editor John Hilton 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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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.