NEW YORK -- State insurance regulators moved briskly through four topics Saturday as they try to thread the needle between suitability and fiduciary in crafting an annuity sales model law.
Annuity Suitability Working Group chairwoman Jillian Froment urged members to maintain that pace as she outlined a schedule to produce a draft model "by mid-September."
That will be followed by "a very aggressive call schedule" to complete the annuity sales model by the National Association of Insurance Commissioners' Fall Meeting in December, Froment added.
The working group met in the state where a tough best-interest standard took effect Thursday for the sale of annuities. New York regulators are pushing colleagues to adopt its standard, which also covers life insurance, as the national model.
But there is plenty of resistance, which isn't likely to go away, Froment acknowledged.
"What best interest means to us as a working group does not mean that every state around the table will support that," she said. "We’ve already established that it’s going to be less than a fiduciary standard, but is more than suitability. That’s what our goal is -- to define what that means."
The group moved through four key phrases in one hour.
The first two phrases under the care obligation were discussed together:
- Reasonable basis to believe consumer would benefit from features of annuity.
- Reasonable basis to believe product as a whole would address consumer’s needs.
Birny Birnbaum, executive director of the Center for Economic Justice, offered alternative language that he said better protects the consumer.
"We think the intent is that the recommendation should be in the best interest of the consumer as a whole. Not the product as a whole, but the consumer," he explained. "We think that intent is better captured with the totality of the consumer’s insurance needs."
Iowa Insurance Commissioner Doug Ommen authored much of the current draft the working group is tweaking. The "Iowa draft" was introduced earlier this summer in a bid to harmonize the NAIC effort with the Securities and Exchange Commission rule, Ommen has said.
“There are elements of suitability that are in best interest. So to say we’re going to throw out suitability to me is really getting us nowhere," Ommen said in response to Birnbaum. "We did not include the ‘as a whole’ language because we felt it was captured in the 'annuity and its features' or the 'features of the annuity' language.”
Further "wordsmithing" is needed on these phrases, Froment said.
Obtain customer signed statement of customer’s refusal to sign profile.
Regulators struggled with how to write a standard to protect a consumer's privacy while ensuring they are informed about annuity purchases.
This phrase has many different implications, regulators noted. What if a consumer only wants a specific annuity? What if a consumer does not want to provide their financial information?
In these cases, everyone agreed the producer should not be making a recommendation. Birnbaum argued for additional consumer protections.
"Even the simplest of annuities are complex," he said. "The idea that somebody would buy something like that without any discussion with the producer, and therefore without any discussion of a recommendation, seems implausible to us.”
But Gary Sanders, vice president of government relations for National Association of Insurance and Financial Advisors, said it isn't the agent's job to be "paternalistic."
“People need to be free to do what they want," he said. “I also caution against putting too many roadblocks in place that inhibit the real-world sales process.”
The standard needs to make it clear that the insurer and the producer make a fair and reasonable effort to obtain the consumer information, Ommen said.
“There are those circumstances in the middle where the customer will give the information they want to give, but not all the information," he explained.
Carrier only has to supervise its own products (does not have to take into account other carrier’s products).
The working group spent the least amount of time on this phrasing. Although insurers don’t have to supervise other products, that does not relieve the producer from acting in a best-interest manner, Birnbaum said.
“You do have to be aware of other products out there that may better fit the consumers needs," he added.
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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