Regulators Hope FAQs Will Push States To Adopt Annuity Sales Rules

By John Hilton

The National Association of Insurance Commissioners has finished a series of frequently asked questions designed to help states adopt new annuity sales rules.

The four-page document lists 13 questions and related answers on a variety of topics. Regulators are looking for comments on the FAQs by Oct. 2. Comments should be sent only by email to Jolie Matthews at jmatthews@naic.org.

The NAIC revisions to the suitability in annuity transactions (#275) model law were adopted in February. Since then, Arizona and Iowa have adopted the rules, which establish a best-interest standard that aligns with rules being considered by other agencies.

During a July conference call with the Annuity Suitability Working Group, regulators from Idaho, Ohio, Rhode Island and Kentucky said they are working on updating their annuity rules.

Quicker Timeline Envisioned

Regulators and industry officials have indicated that they expected a much wider adoption of the model rule by now. The FAQs idea emerged during the summer meeting as a way to answer potential questions and confusion that state officials might be harboring.

For example, the FAQs explain exactly what a best-interest standard of conduct really means:

To satisfy the best interest obligation, a producer or an insurer must satisfy the four obligations: 1) care; 2) disclosure; 3) conflict of interest; and 4) documentation.

To satisfy the four obligations, when making a recommendation, producers must:

• Know the consumer’s financial situation, insurance needs and financial objectives;
• Understand the available recommendation options;
• Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives;
• Communicate the basis of the recommendation to the consumer;
• Disclose their role in the transaction, their compensation, and any material conflicts of interest; and
• Document, in writing, any recommendation and the justification for such recommendation.

States have different different methods for the adoption of regulations. Arizona, for example, required legislative approval for its new annuity regulation, while in Iowa, Insurance Commissioner Doug Ommen's department was able to issue rules on its own.

Regulators are expected to discuss and finalize the FAQs once feedback is received.

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.