NAIC Finalizes ‘Best Interest’ Annuity Sales Model Law

By John Hilton

State insurance commissioners voted today to sent a strengthened annuity sales model law that adds a best-interest standard to the states for adoption.

The successful vote came over the strenuous objections of New York Superintendent of Financial Services Linda Lacewell.

"I believe the role of the NAIC should be to lift all states up and not just be the common denominator of what can be agreed to by 50 states plus territories," Lacewell said.

She was supported by California Insurance Commissioner Ricardo Lara, who voted in favor of the model. But Lara added that he supports getting regulators to a fiduciary rule as soon as possible.

"While I believe this law is not perfect," Lara said, "overall for California it would be better for consumers than the existing regulations."

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.

Industry Support

The final rule was embraced by industry trade associations fresh off defeating the Obama administration fiduciary rule.

The Insured Retirement Institute supports the revised model and says it is consistent with the U.S. Securities and Exchange Commission’s Regulation Best Interest (Reg BI), which companies must comply with by June 30.

Similar to Reg BI, the model regulation says that insurance producers shall act in the best interest of the consumer under the circumstances known at the time a recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.

“The NAIC model regulation is a significant enhancement to the standard that applies when producers recommend annuities to their clients,” said Wayne Chopus, IRI president and CEO. “We urge states to move quickly to adopt this new regulation.”

The NAIC proposal also includes IRI-recommended language to provide a safe harbor for all insurance producers who are subject to, and actually comply with, comparable or greater standards such as requirements for those who already comply with rigorous standards.
IRI said that it expects many states will be eager to adopt the new annuity model.

“Strong, consistent regulation is important to protect consumers and to preserve consumers’ choice of financial advice and products that meet their financial and retirement planning needs,” Chopus said. “We look forward to working with states to implement this important regulation.”

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.