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Informal 'Annuities Working Group' Tackling Sales, Disclosure Issues

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An informal “annuities working group” has emerged from the May 2006 meeting of non-insurance and insurance regulators who were concerned about jurisdictional issues in the regulation of annuities, said Jim Poolman in a breakout session here at the annual meeting of NAVA Inc., Reston. Va.

The purpose is to work together on “many different issues” regarding annuities regulation, said Poolman, who until a month ago was North Dakota’s insurance commissioner; a post he held for 7 years.

Members include regulators from FINRA, the District of Columbia, the North American Securities Administrators Association, Inc., and certain states such as Iowa, Minnesota and North Dakota.

Also called the Annuity Roundtable, the group does not meet regularly, said Poolman, now a Bismarck, N.D. insurance consultant. But they do stay in contact.

Funding for the group comes from the members’ own organizations, he said.

Any proposals the group makes will be publicly vetted and testimony taken, he added, so the industry can have input.

The outcome “will affect how [the annuity industry] rolls out [its] products,” he predicted. For instance, the group has been working on developing common disclosure requirements for variable and fixed annuities.

“We want people to be able to read and understand the products, rather than to have to go through pages and pages of information that broker-dealers or producers have to give to customers,” he said. “This disclosure should give upsides of the product and include questions that ought to be asked of the producer, [so the consumer can] get the appropriate information” about the product.

Note: NAVA and American Council of Life Insurers are developing related materials. These are “simple documents” on variable annuities, fixed annuities, and fixed index annuities, said Judith Hasenauer in a separate session. A partner of Blazzard & Hasenauer PC, Pompano Beach, Fla., she said NAVA and ACLI will present the documents to the SEC, FINRA and state securities departments for comment.

Common disclosure requirements will help deter unsuitable sales, contended Poolman. They will also give buying power to consumers, and take away consumer “fear of the unknown.” The products are getting more and more complex, he stressed, noting that even annuity company executives and producers do not always fully understand annuities.

“It is incumbent on regulators to be sure that people do understand–for instance, what it costs to get in and out of the product, the benefits and the downsides.”

And, he continued, “It will be incumbent on annuity companies, whether using captive, broker-dealer or independent distribution, to be able to properly train” the agents who sell the products.

State insurance departments have gotten away from issuing individual insurance licenses for every product across the spectrum, the former regulator pointed out. Instead, most rely on one life and health insurance license, even for annuity sales. Because of that, he predicted that regulators are going to move in the direction of “making it more difficult to get licensed if the companies don’t take a proactive approach to educating their agents.”

The working group is currently trying to figure out “what regulators can require of companies in this area, including possible certification of companies on how they train the agents,” Poolman added.

Regarding sale of FIAs, he said the working group is exploring who will regulate the products. It’s a “quagmire” right now, he said, because some interests believe FIAs are fixed insurance products while others believe they should be regulated as securities. He said he wouldn’t be surprised to see some sort of dual jurisdiction be proposed for this product.

The working group has jointly endorsed the Suitability in Annuity Transactions model regulation of the National Association of Insurance Commissioners, said Poolman.

Currently, 23 states have adopted the most recent version of that model, and 4 more are considering it, said Michael DeGeorge, NAVA vice president and general counsel, in another session.

The original suitability model, passed by the NAIC in 2003, focused on transactions involving seniors, and 7 states have that version in effect, DeGeorge noted. The new version, passed in 2006, applies to transactions involving customers of all ages. Five states have their own suitability standards (not the model), he said.

DeGeorge also noted that 14 states have adopted the NAIC’s Annuity Disclosure Model Regulation, and 9 states have variations of older versions. This regulation applies to fixed and indexed annuities.