As 2020 progressed through the summer, many insurance regulators were concerned that best-interest annuity sales rules were not being adopted in many states.
That is no longer a concern. States are very quickly adopting best-interest rules based on a model regulation put forth by the National Association of Insurance Commissioners. There remains a good possibility that as many as half the states will have best-interest rules on the books by the end of 2021, said Jim Szostek, vice president and deputy, retirement security, for the American Council of Life Insurers.
“We’re pleased with what we’ve seen so far, and we’re pleased with what we think is coming ahead,” he said. “It’s not uncommon for a number of years to go by before you get close to all of them, but I think we’ve got a very good start.”
As of press deadline, the states that have adopted annuity standards along the NAIC’s model include:
- Arizona: in effect
- Arkansas: June 29
- Delaware: Aug. 1
- Idaho: July 1
- Iowa: in effect
- Michigan: June 29
- Nebraska: in effect
- North Dakota: Jan. 1, 2022
- Ohio: Aug. 14
- Rhode Island: April 1
Uniformity Of Preferred Rules
The flurry of activity at the state level became an important priority for the industry once it became clear Democrats had a strong opportunity to return to power. Progressives such as Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., favor tough annuity sales rules.
The more rules on the books, the better the chance the industry could achieve a best-interest compromise it could live with.
“After more than a decade of public debate, federal and state policymakers have seemingly coalesced around a consistent, workable best-interest standard of conduct for financial professionals," said Wayne Chopus, president and CEO of the Insured Retirement Institute. “The continued adoption and implementation of this regulatory framework will be a significant focus for IRI in 2021."
In February 2020, the NAIC adopted a model law that articulates a best-interest standard through the following four obligations: care, disclosure, conflict of interest and documentation. With the outbreak of COVID-19, states were slow to adopt the model in the months that followed.
The NAIC began lobbying state officials last summer and formed a working group to develop a series of FAQs to help facilitate adoption.
The rule specifically does not establish a fiduciary duty, nor does it ban agents from recommending products with a higher compensation structure. Consumer advocates are unhappy with the NAIC model, which remains a suitability standard, said Barbara Roper, director of investor protection for the Consumer Federation of America, earlier this year.
She noted that it exempts cash and noncash compensation from the definition of material conflict of interest.
“The NAIC model rule is explicit and weak,” Roper said. “That’s not a rule that can be tweaked into shape through strengthened interpretations of its key components.”