N.Y. Urges Life Insurance Fiduciary Standard in NAIC Rule – InsuranceNewsNet

InsuranceNewsNet — Your Industry. One Source.™

Sign in
  • Subscribe
  • About
  • Advertise
  • Contact
Home Now reading Top Stories
Topics
    • Life Insurance News
    • Annuity News
    • Health/Employee Benefits
    • Property and Casualty
    • Advisor News
    • Washington Wire
    • Regulation News
    • Sponsored Articles
    • Monthly Focus
  • INN Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
Sign in or register to be an INNsider.
  • Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
  • Insider Pro
  • About
  • Advertise
  • Editorial Staff
  • Contact
  • Newsletters

Get Social

  • Facebook
  • Twitter
  • LinkedIn
Annuity News
Top Stories RSS Get our newsletter
Order Prints
January 25, 2018 Top Stories No comments
Share
Share
Tweet
Email

N.Y. Urges Life Insurance Fiduciary Standard in NAIC Rule

By John Hilton

In a reversal of roles, New York is urging the National Association of Insurance Commissioners to adopt the state’s new best interest regulation, which extends fiduciary responsibility to life insurance.

The New York finance superintendent made the suggestion in a comment letter submitted to the NAIC on its new annuity suitability model.

The NAIC model covers annuity sales only. Twenty comment letters on that proposal were accepted through a Jan. 22 deadline and released Thursday.

Related stories

  • Study: Does pessimism really suppress annuity sales?
  • Sweet streams of income: ChatGPT, the bard of annuities

The NAIC wants to create a model law that all states will adopt, creating a uniform national standard. Maria T. Vullo, New York superintendent of financial services, urged the organization to go further and cover life insurance.

“We believe that acting in the ‘best interest’ of the consumer is an appropriate standard for these products, which often are relied on by consumers as retirement security and estate planning,” her letter read.

A 60-day comment period on the New York amendment concludes Feb. 26. State officials may opt to hold another comment period if changes are made, but it is not required to under state law.

The NAIC is “likely” to issue a revised draft of its model law, Eversheds Sutherland lawyers wrote in a client alert. The timeline puts “the New York proposal on a path for potential adoption before the NAIC completes its process,” the alert stated.

The New York proposal imposes “burdensome compliance obligations” and “certain requirements that appear impractical,” the law firm Drinker Biddle & Reath concluded in a recent analysis.

Plenty of Criticism

The NAIC received a host of critical comments from organizations such as the American Council of Life Insurers and the Insured Retirement Institute.

For example, the IRI expressed concern about the vague treatment of “third-party producers.” Many of IRI’s insurance company members distribute their annuities through third-party producers over whom they have no direct control.

The NAIC draft “will necessarily require subjective and qualitative assessments of each particular client’s circumstances, needs and goals,” wrote Cathy Weatherford, president and CEO of IRI. “Due to the structure and nature of the arrangements between insurers and third-party producers, insurers will not typically have access to all of the information they would need to make their own best interest determinations.”

Most of the comment letters urged the NAIC to work with other agencies pursuing best-interest standards, such as the Securities and Exchange Commission.

“The prospects for such conflicting standards are very real,” wrote David J. Stertzer, CEO of the Association for Advanced Life Underwriting. “There is a flurry of activity addressing the standards for recommending annuities and other insurance products.”

Consumer groups also wrote the NAIC in support of its model law, including AARP and the Consumer Federation of America.

The Model Law

Per Eversheds Sutherland, the NAIC proposal the following key changes that state insurance regulators could then consider incorporating into their existing suitability regulations:

• Best Interest Standard. The NAIC proposal requires that an annuity purchase and replacement recommendation not only be suitable as is currently the case, but also be in the “best interest” of the consumer at the time the recommendation is made. Notably, the NAIC proposal does not substitute “best interest” for suitability; rather, the NAIC proposal requires that a recommendation be both “suitable” and in the “best interest” of the consumer.

• Best Interest Defined. The NAIC proposal defines “best interest” to mean “acting with reasonable diligence, care, skill and prudence in a manner that puts the interest of the consumer first and foremost.” This definition is similar to the DOL best interest standard, but differs in using the “first and foremost” qualifier instead of the “without regard to” qualifier in the DOL standard.

• But Not “Best Available” or “Least Expensive.” The NAIC proposal clarifies that “best interest” does not mean that a recommendation must be for the least expensive annuity product, or the annuity product with the highest stated interest rate or income payout rate available at the time, or the single “best” annuity product available in the marketplace at the time of the transaction.

• Not Limited to IRA Annuities. The NAIC proposal applies to recommended sales and replacements of all annuities for consumers, regardless of whether the annuity is purchased for an IRA account subject to the DOL’s best interest standard.

• Scope Expanded to Solicitation, Negotiation and Sales. The NAIC proposal expands the “scope” of the NAIC model to apply to solicitation, negotiation and sales of annuities, in addition to recommendations, but most of the operative provisions continue to focus on “recommendations.”

• More Suitability Information. The NAIC proposal expands the “suitability information” that a producer must make reasonable efforts to obtain from a consumer before making a recommendation to include information about the consumer’s risk tolerance for changes in nonguaranteed elements in an annuity and a consumer’s financial resources to fund the annuity.

• Producer Evaluation Responsibility. The NAIC proposal requires a producer to evaluate the types of financial products that correspond to the consumer’s disclosed suitability information and address the consumer’s financial objectives.

• Substantial Financial Benefit Standard. The NAIC proposal requires that any replacement recommendation be based on a determination that the replacement would provide a substantialfinancial benefit to the consumer over the life of the product.

• New Disclosures. The NAIC proposal requires consumer disclosures of any limitations the producer or the insurer has in regard to the type of financial products that can be provided, whether only specific insurance company products or a limited range of annuity products can be offered, the scope of the services provided, and the scope of the producer’s licenses. The NAIC proposal also requires consumer disclosures of any and all material conflicts of interest, the percentage or amount of cash compensation above 3 percent that the producer would receive, whether the producer would receive non-cash compensation from an insurer or intermediary (such as an insurance marketing organization), and the basis or bases for the annuity recommendation.

• Senior Exploitation Training Required. The NAIC proposal requires that producer training include training on financial exploitation of seniors and other vulnerable adults.

• Reasonable Cash Compensation Limitation. The NAIC proposal prohibits a producer from receiving more than reasonable cash compensation in making a recommendation, from making any materially misleading statements about the annuity transaction, or basing a recommendation on the producer’s own financial interest. In this regard, the NAIC proposal defines “reasonable cash compensation” as cash compensation that reflects the time and complexity of the product and the transaction involved and is not connected to the volume of production.

• Prohibited Practices. The NAIC proposal adds a new section on “prohibited practices,” that prohibits receiving more than reasonable compensation, and prohibits making material misstatements or basing a recommendation on the producer’s or insurer’s own financial interest.

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.

© Entire contents copyright 2018 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Older

Advisors Growing Wary of TAMPs, Analysts Say

Newer

The Five Biggest Threats to the U.S. Economy for the Rest of 2018

Advisor News

  • Fed slows rate hikes even as Powell says there's more work to do
  • Mortgage rates in U.S. fall again, hit 6.09%
  • 1 in 3 Americans struggling financially but goal-setting is a game-changer
  • Advisors bet on US stocks to outperform in 2023 amid tech rebound
  • Investors want more ESG information from companies
More Advisor News

Annuity News

  • Study: Does pessimism really suppress annuity sales?
  • Sweet streams of income: ChatGPT, the bard of annuities
  • F&G Annuities & Life announces equity investment in life IMO SYNCIS
  • Investors scrambling to lock in rates propel annuity sales to record highs
  • North American and Annexus launch new fixed index annuity
Sponsor
More Annuity News

Health/Employee Benefits News

  • State: all insurers failed to comply with Oregon Reproductive Health Equity Act
  • Will plan fix California health care?
  • Insurance giant Elevance to move into 15th state
  • Medicare card scam targets seniors for personal info
  • Yes, states are re-checking Medicaid and CHIP eligibility starting in April
More Health/Employee Benefits News

Life Insurance News

  • Maid's son tells judge Alex Murdaugh took $4M for her death
  • Chris Wilson tells court former friend Murdaugh confessed he was ‘stealing money’
  • State's motive testimony could prolong Alex Murdaugh murder trial
  • Equitable expands portfolio in VUL market
  • New date set for billionaire suspect accused of bribing state cabinet member
More Life Insurance News

- Presented By -

Top Read Stories

  • Chicago news roundup: PPP fraud uncovered in Chicago, informant reveals $100K bounty on FBG Duck and more
  • Gov. Carney: Enrollment on Delaware's Health Insurance Marketplace for 2023 Reaches All-Time High
  • 25 people charged in fake nursing diploma operation
  • Connecticut addressing broker shortage amid The Great Unwinding
  • Missouri Department of Insurance: Over $24 Million Returned To Missouri Insurance Consumers In 2022
More Top Read Stories >

FEATURED OFFERS

Meet Encova Life
We know agents matter. You can count on our life team to be high tech, high touch and responsive.

How to Write For InsuranceNewsNet

Find out how you can submit content for publishing on our website.
View Guidelines

Topics

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • Advisor News
  • Washington Wire
  • Regulation News
  • Sponsored Articles
  • Monthly Focus

Top Sections

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits News
  • Property and Casualty News
  • AdvisorNews
  • Washington Wire
  • Insurance Webinars

Our Company

  • About
  • Editorial Staff
  • Magazine
  • Write for INN
  • Advertise
  • Contact

Sign up for our FREE e-Newsletter!

Get breaking news, exclusive stories, and money- making insights straight into your inbox.

select Newsletter Options
Facebook Linkedin Twitter
© 2023 InsuranceNewsNet.com, Inc. All rights reserved.
  • Terms & Conditions
  • Privacy Policy
  • AdvisorNews

Sign in with your Insider Pro Account

Not registered? Become an Insider Pro.