NAIC to Huddle on Contentious Best Interest Model Law

With critics mounting, the National Association of Insurance Commissioners will hold a conference call Wednesday to discuss its controversial annuity transaction model regulation.

The Annuity Suitability Working Group will discuss their next steps after a recent comment period on the regulation. Critics from both sides have panned the attempt to deliver a best-interest standard.

Dean L. Cameron, Idaho insurance commissioner and chairman of the working group, did not return a phone call seeking comment.

A March 8 letter from AARP summarized the difficulty commissioners face in producing a tougher standard.

“The proposed model regulation is confusing because it attempts to maintain the outdated suitability standard and then graft a best interest standard on top,” wrote Doug Certner, legislative counsel and policy director for AARP.

Similar to the Department of Labor fiduciary rule, the NAIC model would place limits on agent compensation, require more disclosures and set a “best interest” standard. The standard would apply to annuity sales only.

NAIC model laws must then be adopted by a state before they are applicable.

Several states, however, are not waiting. New York, Nevada, New Jersey and Connecticut are a few states where the fiduciary, best-interest standard is winning votes.

New York bypassed the NAIC and proposed its own best-interest standard in late December. The standard covers life insurance as well as annuities and is in a 60-day comment period.

The NAIC stipulation that all “non-cash” compensation exceeding $100 must simply be disclosed was termed “insufficient” by Jodi Lerner, attorney for the California Insurance Department.

“Bonuses, contests, special awards, differential compensation and other incentives that are won or received as a result of having sold a threshold dollar amount of annuities would reasonably be expected to affect a producer’s ability to act impartially and in the consumer’s best interest,” Lerner wrote.

‘Overarching’ Standard

Although received well past the Jan. 22 deadline for comments, the 12-page AARP letter urged the NAIC to endorse “an overarching best interest standard for producers providing personalized investment advice.”

Producers not adhering to a best interest standard should be prohibited from using the “Adviser” title, the letter said.

“AARP believes that the model regulation should act as a floor not a ceiling so that consumers do not lose protections that are more robust,” Certner wrote.

With 38 million members, AARP is a powerful consumer lobbying group. The organization asked the NAIC to prohibit financial incentives, and to require extensive documentation on recommendations, as well as annual seller training and oversight.

Lowest price shouldn’t be the sole determining factor in making a recommendation, AARP agreed, echoing the position of the DOL.

“For example, a consumer may be willing to pay a higher price for a policy if the policy is more highly rated because the insurer has more capital reserves,” Certner wrote. “If a consumer is particularly risk averse, a higher priced policy may make sense.”

‘Impossible’ Standards

Meanwhile, industry groups say the NAIC draft model law goes too far to restrict annuity sales.

“In raising the standard of care from suitability to best interest, the NAIC should not impose obligations on an insurer that are impractical, if not impossible, to fill,” wrote Jonathan D. Niemeyer, senior vice president and general counsel for Western and Southern Financial Group.

The annuity working group will meet again in person at the NAIC 2018 Spring National Meeting in Milwaukee March 24. The annuity transaction model law is the only substantive issue on the agenda.

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.

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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.