NAIC Annuity Sales Model Law Teed Up For Dec. 30 Adoption

By John Hilton

State insurance regulators plan to use all their available time before officially adopting a strengthened annuity sales model law by the new year.

The Life Insurance and Annuities (A) Committee will hold a conference call Dec. 30 to adopt revisions to the suitability in annuity transactions (#275) model law. All final comments are due by 10 a.m. that day to Jolie Matthews via email only to jmatthews@naic.org.

If the A Committee formally adopts the reworked model next week, as expected, then it will go to the National Association of Insurance Commissioners' Executive Committee and Plenary for final approval. States will then be able to adopt the new rules in 2020.

The model articulates a best-interest standard through the following four obligations: care, disclosure, conflict of interest and documentation.

The new regulations will commit the agent to extra work and documentation to establish the consumer's profile. Agents will need to find out and document things like a consumer's financial situation, insurance needs and financial objectives.

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.

Three Appendixes In Question

The Annuity Suitability Working Group charged with crafting the rules' changes held one final conference call last week to smooth out the language.

In particular, the group pondered final changes to three appendixes: Agent (Producer) Disclosure For Annuities, Customer Refusal to Provide Information and Consumer Decision to Purchase an Annuity Not Based on a Recommendation.

The working group ran out of time to finalize that language and forwarded the rule changes with language submitted by a group of eight industry trade associations. Iowa Insurance Commissioner Doug Ommen, chairman of the A Committee, encouraged regulators and interested parties to compromise on the language in the appendixes.

"These templates are templates that really the insurance companies and the producers will own," he said. "And it's going to come in the midst of a sales transaction, it'll be part of that communication process. So I would just encourage all those that have been engaged today, to really in earnest, see if you can come up with compromise language that is understandable and isn't just a document."

Rules Banning Sales Incentives Softened

The rules requires producers to also disclose and describe the types of compensation they are receiving, and, if requested by the consumer, the amount of compensation received. Consumers must be given a disclosure alerting them to the right to request the amount of compensation.

Secondly, sales contests, bonuses and trips might be a thing of the past in states that adopt the new rules. The rule requires insurers “to identify and eliminate any sales contests, sales quotas, bonuses and non-cash compensation that are based on the sales of specific annuities within a limited period of time.”

While that language remains in the final version sent to the A Committee, the working group added a "drafting note" to clarify that some incentive programs are permitted:

"The intent of this subparagraph (h) is to prohibit sales contests, sales quotas, bonuses and non-cash compensation that promote the sale of a particular product within a limited period of time, but not to prohibit general incentives regarding the sales of a company’s products with no emphasis on any particular product."

When it is formally adopted, the new NAIC annuity model is expected to harmonize well with the impending best-interest regulation drawn up by the Securities and Exchange Commission, as well as retooled Department of Labor rules.

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.