NAIC Gets Pushback Over Extending Annuity Rules To In-Force Agreements

By John Hilton

BOSTON -- Applying national annuity sales rules to in-force agreements will create all kinds of problems and render the consumer a loser in the end, industry reps said this morning.

Still, a National Association of Insurance Commissioners' annuity working group endorsed the tougher standard via a straw poll vote.

The working group is a meeting here with a goal of finalizing an annuity sales transactions model law the NAIC can send to the states for adoption. Members ended their hour-long meeting little closer to that goal.

"I'm not sure when we're going to meet next, maybe over the phone and maybe we'll have to have another meeting along the way," said chairman Dean Cameron, Idaho insurance commissioner.

Near the end of the session, Wesley Bissett, senior counsel for government affairs for the Independent Insurance Agents and Brokers of America, expressed the frustration of many in the room: "We're looking for very clear and objective rules. Whatever it is that you want agents to do, we wish you would just spell it out."

Group discussion quickly encountered controversy over the definition of "consumer." James Regalbuto of New York pushed for the "very broad" definition used by his state, which includes additional sales and policy upgrades to existing customers as well as new customers.

Industry representatives from the Insured Retirement Institute and the American Council of Life Insurers pointed out the difficulties it would create to repeat a suitability analysis on existing customers.

In addition to extra work and additional liability exposure, tweaking existing policies generally does not pay an agent nearly as much as servicing a new client, an industry representative said following the meeting. So some clients are likely to lose out on those necessary retirement planning adjustments.

The generally conservative Cameron seemed to side with New York in the back-and-forth discussion.

"Any time an agent is in front of a consumer they have a responsibility to review the information ... and determine whether their decisions are suitable, especially if (the clients) are investing additional money," he said.

Two Sides Of Regulation

The working group picked up where it left off June 1 at the conclusion of a special meeting in Kansas City.

That meeting featured some agreement on the issues that separate conservative states, such as Iowa, from more liberal states such as New York and California.

Since then, however, New York went ahead and enacted its own best-interest standard that covers life insurance as well as annuities. The working group model law will cover annuity sales only.

The group made substantial progress in Kansas City opting for a best-interest-like standard, but not calling it that. This morning's meeting continued the trend of members agreeing a little with Iowa and a little with New York through periodic "straw poll" votes.

Cameron reminded the room that the votes are not binding.

Prior to accepting New York's definition of "consumer," the group voted for Iowa's language on "non-cash compensation."

The group also endorsed Iowa's definition of "insurance intermediaries." The idea is to capture those industry professionals -- independent marketing organizations, for example -- who are accepting and also administering compensation, explained Doug Ommen, Iowa insurance commissioner.

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.