VA Sales Oversight Decision Left In Hands Of State Legislatures

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With the adoption of a new model law, state legislatures may be cast in the role of Solomon, determining whether sales of variable contracts should be regulated as securities, insurance contracts or both.

In the model developed and adopted by the National Conference of Commissioners on Uniform State Laws, Chicago streamlines the Uniform Securities Act. It leaves it up to state legislatures to decide whether variable contract sales should fall under the jurisdiction of state securities regulators.

Work on the model has been ongoing for the last two years, and culminated with a vote of about 350 NCCUSL commissioners at their annual meeting in Tucson last week.

The model is simply a template for state legislatures to use or not.

Insurers and producers represented by the American Council of Life Insurers and the National Association of Insurance and Financial Advisors argue that requiring the sale of the product to be overseen by securities regulators creates an unnecessary layer of regulation.

Advocates for including regulation of the sale of these products as securities say sales of variable contracts consistently come up as a problem. Advocates include the Financial Planning Association, Atlanta, and the Consumer Federation of America, Washington.

As Craig Goettsch, Iowa superintendent of securities, explains, when variable contracts are discussed with the Securities and Exchange Commission and the National Association of Securities Dealers, “one of the top three problems, unfortunately, is variable annuities.” In particular, he says, the suitability and churning of contracts are issues raised.

So, he explains, this is really a sales practices issue and not an effort to regulate the product itself.

According to research done by the Kansas securities department, as of December 2001, 93% of Kansas agents also have a securities license and, consequently, would not be subject to new regulations or fees (see NU, June 24.)

The ACLI and NAIFA strongly disagree.

Carl Wilkerson, ACLI chief counsel-securities, says 37 states exclude variable contracts from the definition of securities and 48 states grant the insurance commissioner exclusive jurisdiction to regulate the issuance and sale of variable contracts.

NCCUSL commissioners recognized that the original proposal to require securities commissioner oversight was entirely unacceptable to the insurance industry and, consequently, decided to leave the decision to the states, Wilkerson adds.

The ACLI is now more supportive of the model but could give it total support if there was a blanket exclusion of variable products from securities regulation, he says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 12, 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.