Based on the first batch of comment letters, state insurance commissioners have a long way to go to finalize an annuity sales model law that gains approval from industry players.
A National Association of Insurance Commissioners' working group debated its annuity sales model throughout 2018 -- mostly without success due to a few thorny issues. Finally, they put out a draft rule that skipped over many of those issues and accepted comments through Feb. 15.
NAIC model laws are sent to state legislatures for adoption in an attempt at uniformity. But several states are already advancing their own individual annuity sales rules. New York, in particular, passed new rules that take effect in August.
Most interestingly, a group of 10 independent marketing organizations sent a letter of borderline approval of the NAIC effort, and suggested any disagreements could be worked out. The signatories said the group represents about 40 percent of the fixed indexed annuity sales in the independent market.
The IMOs emphasized the need for "uniformity" and acknowledged the nightmare of possibilities that come with every state operating under different sales rules.
"A patchwork set of laws designed by those without the expertise of the NAIC will result in inconsistent regulation that will create more confusion, additional and unnecessary compliance and regulatory oversight challenges, and ultimately wasteful and unnecessary costs for our annuity clients," the IMO letter reads.
In January, a separate group of IMOs sent a letter to the leading trade associations that represent annuity sellers, urging them to oppose the NAIC effort.
The NAIC Annuity Suitability Working Group will take the comments and resume work on the model law. Here are a few of the issues gleaned from the 18 comment letters:
- In-force contracts. One issue the working group disagreed on is where the annuity rule will apply to in-force policies. A group of seven top industry trade associations urged the group to drop the in-force idea.
"This change would create significant confusion and uncertainty, as it fails to provide any clarity as to how the industry should implement it," the letter reads. "For example, insurance companies’ current systems cannot determine whether an in-force transaction requested by an annuity owner was recommended by a producer."
2. Clarify 'fiduciary' meaning. The National Association for Fixed Annuities asked the working group to make it clear that producers and insurers will not be considered fiduciaries under the rule. NAFA proposed language indicating as much.
3. Compensation disclosure. The National Association of Insurance and Financial Advisors opposes the compensation disclosure requirement in the draft rule. Doing so could corrupt the sales process in several ways, wrote Gary A. Sanders, vice president of government relations for NAIFA.
"It would and should not be a surprise to anyone that the agent will be compensated for the marketing and sale of an annuity; likewise, telling the consumer the specific dollar amount (or a range of amounts) of compensation to be received by the agent for the sale of a specific product will be of no benefit to the consumer in his/her efforts to evaluate the producer’s impartiality," the letter reads.
4. Longevity and market risk. A joint industry letter asked the working group to add "market risk" and "longevity risk" to the consumer profile information definition. Consumers would be asked to acknowledge and accept these risks "when relevant."
Jackson National spearheaded this letter, which was signed by Transamerica, Pacific Life and Lincoln Financial Group.
5. Uniformity with the SEC rule. The American Council of Life Insurers submitted comments praising the working group for efforts to harmonize its rules with the Securities and Exchange Commission.
The SEC Regulation Best Interest is in its own comment phase. While the NAIC model refrains from using the term "best interest," the rules are quite similar in scope, noted Bruce Ferguson, senior vice president of state relations for ACLI.
"ACLI remains committed to achieving a uniform, national best interest standard of care for
annuities and securities across all regulatory platforms," Ferguson wrote. "While there are some important differences that still must be reconciled, we are encouraged that there is a significant degree of commonality between" the SEC and NAIC.
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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