By Linda Koco

A Utah house bill involving index annuity sales met with strong insurance industry opposition recently and was subsequently tabled.

Introduced by Rep. Merlynn T. Newbold, (R), H.B. 277 seeks to require persons selling index annuities to hold a license from the National Association of Securities Dealers.

Currently, agents and brokers in all states must be insurance licensed to sell index annuities, not securities licensed. That is because states have treated index products as a variation of traditional fixed annuities, since both guarantee a minimum interest rate. (Note: The products differ in how they credit interest. Index annuities link interest to gains in a specified market index, while traditional annuities offer a stated interest rate.)

The proposed bill would change Utahs licensure requirement by modifying the Utah insurance code to say: “Before a person may sell, solicit or negotiate an indexed annuity, that person must meet the same licensing requirements described in Subsection (1) for a variable contracts line of authority.”

At least 20 industry executives recently attended a Utah House Business and Labor Committee hearing on the bill to object to this change, sources say.

When the chair asked if anyone opposes the bill, 20 hands reportedly shot up, and then 3 of the 20 were allowed to speak. Other insurance professionals circulated documents in support of their opposition to the measure.

The committee tabled the bill after that, sources say.

The National Association for Fixed Annuities, Milwaukee, Wis., and the American Council of Life Insurers, Washington, were among those opposing the bill, says Joan Boros. A spokeswoman for NAFA and a partner at the Jorden Burt law firm in Washington, D.C., Boros speculates that the measure may have been an attempt to ensure that those selling indexed annuities have sufficient training.

When the measure was tabled, she explains, some committee members reportedly were heard saying that an alternative might be to “require mandatory training for CE credits.”

If that is the actual intent, quips Boros, then passing H.B. 277 “would be like killing a mosquito with an elephant gun.”

“Our position is that this is a federal and not a state issue,” says Kim OBrien, executive director of NAFA. So far, she adds, “the Securities and Exchange Commission and the NASD have not made this determination.”

The SEC did issue a “concept release” on index annuities a few years ago, she points out, which sought input on whether the annuities are securities. However, the SEC “at the time did not determine that NASD licenses are required to sell equity indexed annuity products.”

Utah tends to handle legislation on a “fast track,” says Boros. So opponents of the measure had to marshal their arguments quickly. She credits this fast-track response with helping table the bill.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 5, 2004. Copyright 2004 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.