Insurers and producers urged state insurance regulators to oppose efforts to bring variable products under the additional purview of state securities regulation.
In response, insurance regulators at the spring meeting of the National Association of Insurance Commissioners here said they would review comments and possibly make a decision by the NAIC summer meeting in June.
“Do you agree that variable annuities are securities?” Larry Mirel, insurance commissioner for the District of Columbia, asked industry representatives.
In response, Carl Wilkerson, chief counsel of securities and litigation with the American Council of Life Insurers, Washington, said that for federal purposes, they are securities but for state regulatory purposes, they are insurance products. Unlike other securities, according to Wilkerson, this is a hybrid securities product.
Insurance departments have been very effective in regulating the product, he continued.
But Mirel asked, if variable products are hybrid, then why wouldnt they be subject to securities regulation? In response, he was told that sales practices allegations are unrelated to the products hybrid status.
The issue of suitability was also raised and it was noted that because suitability regulation for insurance products cannot be put in place, securities regulators are arguing that they need to regulate the product.
That argument is currently being made in efforts to enact H.B. 2347 in Kansas, a bill that would give the Kansas securities department joint jurisdiction over variable products.
In response to that issue, insurers have pointed out that the product is under the scrutiny of federal regulators, and there are suitability requirements in place at the federal level.
The starting point for the discussion should be whether a problem exists with current regulation, according to Gary Sanders, senior counsel for law and state relations with the National Association of Insurance and Financial Advisors, Falls Church, Va.
In making its case, the ACLI says the Securities and Exchange Commission, the National Association of Securities Dealers, and state insurance regulators already have oversight over variable contracts and that an additional layer would add expense in a competitive market environment.
Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 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.