Action Delayed on NAIC Annuity Suitability Model

A National Association of Insurance Commissioners committee will decide in mid-December whether to adopt a new model for annuity sales suitability.Meeting at the NAIC's winter national meeting, the full Life Insurance and Annuities Committee delayed consideration of a draft model approved by the Suitability of Annuity Sales Working Group Dec.1. The committee will consider the new model via conference call Dec. 18.Supporters said the new model better addresses regulatory and marketplace changes since the model was last revised in 2006. It tightens rules on agent training and requires insurance companies to more strictly review products and transactions for suitability concerns, a responsibility that may be delegated to broker-dealers or third parties under the current model. It also holds insurers accountable for actions taken by producers in selling their products."The model makes the insurer responsible for suitable annuity sales," Wisconsin Deputy Commissioner Kim Shaul told BestWire.Committee Chairman and Connecticut Insurance Commissioner Thomas Sullivan praised what he said was a "yeoman's effort" by the working group, but said the quick turnaround of the current draft -- approved four days after being drafted -- leaves room to refine the language. The committee will accept "cleanup" recommendations but not "substantive" comments before the conference call meeting, Sullivan said.The working group voted 13-2 to approve the current draft, with regulators from California and Ohio saying the draft needs more work (BestWire, Dec. 2, 2009).In a joint letter, representatives of the American Council of Life Insurers, the Insured Retirement Institute (formerly NAVA — the Association for Insured Retirement Solutions) and the National Association of Insurance and Financial Advisors expressed concerns that any standard should be adopted uniformly (BestWire, Dec. 2, 2009)."Insurers do want to be accountable and will be under the model," IRI Senior Vice President and General Counsel J. Lee Covington said in an interview. However, he said, insurers should not be "subject to regulatory sanctions and penalties for isolated instances of noncompliance."The current model, which applies to consumers of all ages, seeks to impose on life insurers an express obligation to ensure their variable annuities are sold to suitable parties. It also imposes suitability requirements on the purchase or exchange of fixed annuity policies, similar to the federal requirements imposed on broker-dealers and other investment advisers for variable annuity sales (BestWire, Feb. 25, 2008).(By Sean P. Carr, Washington Correspondent: [email protected])