NAIC To Tangle Over Annuity Sales Regs At Boston Meeting

By John Hilton

A group of state insurance commissioners will gather in Boston Saturday and again attempt to reach a consensus on a controversial annuity sales model law.

The Annuity Suitability Working Group will pick 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.

“New York, being fairly aggressive on this front, kind of got out in front of everybody as much as they could with the idea they were going to push for their standard to be the nationwide standard,” said William T. Mandia, a partner at Stradley & Ronon, a Philadelphia law firm.

“So far, the committee has not been willing to go as far as New York with the scope of the products covered,” he added.

The four-day Boston event is the National Association of Insurance Commissioners’ annual summer meeting.

What Is Realistic?

The group made substantial progress in Kansas City opting for a best-interest-like standard, but not calling it that.

A successful straw-poll vote saw members agreeing to pursue a "suitability plus" option. Going with the best interest standard "would raise significant challenges when we bring the regs to our legislature," said Michael Humphreys of Tennessee.

The liberal faction led by New York gained a concession with language requiring the producer to disclose the basis for any new recommendation to the consumer.

James Regalbuto of New York pushed for tougher documentation on annuity recommendations.

“If it’s a ‘he said, she said,’ whoever can produce enough notes to document their experience is going to win,” he said. “So if there’s an issue down the road, we can say ‘OK, show us the documentation where you made this recommendation.’”

The New York idea includes a cost-benefit analysis to be folded into the recommendation, as Regalbuto described it.

Difficult Choices

NAIC model laws are sent to the states for adoption. Finding agreement on difficult issues has long been a problem for NAIC committees.

"Our end goal is to have a product that can pass, not only this group, but the (NAIC) A Committee, plenary and ultimately the states," Idaho Insurance Commissioner Dean Cameron said in Kansas City.

Cameron is chair of the Annuity Suitability Working Group.

The industry will be watching the NAIC to see what regulatory framework it produces. Having defeated the Department of Labor fiduciary rule, insurers are now waiting out not only the NAIC, but the Securities and Exchange commission as well.

A public comment period on the SEC best-interest rule closes next week. It sets a standard of disclosures for brokers, while the NAIC has purview over all insurance products.

“I think they’re going to find a way to harmonize the two” rules, Mandia said.

Then there’s the much-tougher New York rules, which will take effect in August 2019. Insurers will likely have to make a decision whether to pay higher compliance costs to do business in New York, Mandia said.

“It’s such a large market that I can’t imagine that life insurers on the whole will avoid it,” he said. “So I think the question is going to become: Who stays in and what impact does it have on the way things are priced?”

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.

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.