Regulators: Hold Insurers Accountable For Annuity Sales Incentives

By John Hilton

An insurance commissioners' working group wants to hold insurers to a greater responsibility for agent compensation standards for annuity sales.

The Annuity Suitability Working Group is working through five questions in a bid to finalize an annuity sales model law that regulators have been working on for more than a year. On a Tuesday conference call, members debated Question 1:

What constitutes a material conflict of interest when recommending annuities?

Setting rules for carriers to better control conflicts related to bonuses, sales contests and trips might be the best solution, said Iowa Insurance Commissioner Doug Ommen, vice chairman of the working group.

But Dean Cameron, director of the Idaho Department of Insurance, needed some convincing.

"Everybody expects that the agent or the entity that is helping the consumer is going to get paid, is going to be compensated, and I don’t see that as a problem at all," said Cameron, former chairman of the group. "Maybe they’re motivated by a trip, but rarely will they know where their standard is, or how close they are, until it gets to the end of the year."

“I think the biggest problems are the impressions created when the sales quota or even the bonus is tied to a specific product," Ommen explained. "The problems are those practices that may involve incentivizing specific products."

Producers might not even be aware of some of those practices, but insurers are in the best position to eliminate them, he added.

Ommen stressed that he is not suggesting insurers infringe on the free market by, for example, setting comp rates as an industry.

'An Obvious Conflict'

Regulators had no interest in a California suggestion, articulated in a comment letter, that all incentives, including commissions, be declared a "material conflict of interest."

"The higher the commission, the higher the conflict of interest," said Jodi S. Lerner, attorney for the California Department of Insurance. "If you’re going to get some exorbitant commission, it’s an obvious conflict."

Last week, California Insurance Commissioner Ricardo Lara told InsuranceNewsNet that his department would push for a tough New York-style annuity sales standard if he feels the eventual NAIC model falls short.

“I definitely want us to get away from the idea that the mere fact that you’re being compensated means you’re not going to act in someone’s best interest," said Lorrie Brouse, deputy commissioner and general counsel for the Tennessee Department of Commerce and Insurance.

"I do have a concern that we overregulate" to the point that no one wants to enter the marketplace, Brouse added.

The group is now chaired by Jillian Froment, who broke the conflict of interest discussion into three "buckets": commissions, incentives and ownership interest.

Put Consumers First

Birny Birnbaum, executive director if the Center for Economic Justice, pushed for a pure best-interest standard that puts the consumer first.

"Commission-based compensation should be designed to reward producers for sales that remain in force – consistent with the investment nature of the annuity products – as opposed to compensation that rewards producers only for sales," he wrote in a comment letter.

That means focusing on the insurers and the IMOs designing the compensation structures, he said during the conference call.

The working group will hold another 90-minute conference call Monday, then meet in person Aug. 3 for the National Association of Insurance Commissioners' Summer Meeting in New York City.

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.