Industry Fights Push To Put VAs Under State Securities Regulators Oversight

By

Philadelphia

Insurers and producers are saying variable contracts are well-served with insurance departments overseeing regulation of these products. But as regulators at the summer meeting of the National Association of Insurance Commissioners here heard, there are others who say variable contract sales practices should come under the purview of state securities regulators.

Counted among that number are the North American Securities Administrators Association, the National Association of Securities Dealers, and the Consumer Federation of America, all in Washington; and the Financial Planning Association, Atlanta.

Those who favor keeping sales practices oversight in the camp of insurance regulators include the American Council of Life Insurers, Washington; and the National Association of Insurance and Financial Advisors, Falls Church, Va.

During the summer meeting, the ACLI asked the NAIC to write a letter in support of retaining authority for variable contracts with state insurance departments. A group called the National Conference of Commissioners on Uniform States Laws, Chicago, is set to vote on the issue with its new version of the Uniform Securities Act at the end of July.

Should the new version of the Act be adopted, state legislatures could then take the model and enact it in their states.

Despite ACLIs assertion that immediate NAIC action was needed, regulators said they were not familiar with the issue and would have to look at it before deciding on whether or not to weigh in.

Carl Wilkerson, ACLI chief counsel-securities and litigation, said, “It is incomprehensible that a body of state insurance regulators would stand by and allow them [securities regulators] to take exclusive state jurisdiction and not say anything about it.”

Wilkerson said he understands that insurance regulators want to go through the proper procedures, but added, “someone is trying to eat their lunch.”

Forty-eight state insurance departments have exclusive jurisdiction over variable contracts, he said, and giving securities regulators oversight over the product would create “statutory conflict.”

Wilkerson says it is an issue of enlarging jurisdiction and revenue for securities regulators. He says that of over 330,000 registered representatives in the insurance industry, 65 disciplinary actions have been the highest number in any single year for the past six years.

David Brant, Kansas securities commissioner and chair of the NASAA variable annuities project group, disagreed.

Brant said the issue of an additional layer of regulation is “overblown.”

Currently, according to Brant, variable products are securities under federal law. Additionally, he said, as of December 2001, 93% of Kansas agents also have a securities license and consequently, most producers and broker-dealers would not be subject to new regulations or fees.

Brant also said the oversight of securities regulators would be restricted to sales practices and not to product or company regulation.

NAIFA has maintained the position that the NCUSSL proposal means an additional layer of regulation for producers, says Gary Sanders, NAIFA associate general counsel.

Variable contracts, he maintained, are among the most heavily regulated products in the industry.

But James Hunt, a representative with the Consumer Federation of America, says variable products are “full of high charges” and “state securities regulators with their greater knowledge on the securities side ought to be able to have a crack at regulating them.”

Robert Neill, assistant director of government relations with the FPA, says variable contracts should be considered securities because they are subject to market risk. Additionally, according to Neill, investor advisor representatives have a “threshold of competency” they have to meet through exams and someone selling insurance may not meet that level of competency.

“You want to make sure that they are giving suitable recommendations,” he added.


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 24, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.