Regulators have received the go-ahead to develop one model regulation that will seek to curb unsuitable annuity sales and another model that will seek to end improper use of professional designations.
The executive committee of the National Association of Insurance Commissioners, Kansas City, Mo., approved the projects here at the NAIC’s summer meeting.
The proposed designations model is on a fast-track.
The NAIC’s plenary, or body that represents all voting members of the NAIC, could vote on a draft by the end of June, according to New York Insurance Superintendent Eric Dinallo, chair of the NAIC’s Life Insurance and Annuities Committee.
The model, based on a model adopted by the North American Securities Administrators Association, Washington, April 1, has the support of groups such as AARP, Washington; the American Council of Life Insurers, Washington; and the National Association of Insurance and Financial Advisors, Falls Church, Va.
During discussions about whether the NAIC should proceed with work on an annuity suitability model, Birny Birnbaum, an individual who gets funding from the NAIC to speak for consumers in NAIC proceedings, said there may be a problem with how commissions are paid as well as with unsuitable sales.
In some cases Birnbaum said, commission can equal up to 110% of the first year premium on the sale.
“You don’t hear about an inappropriate umbrella policy,” Birnbaum said. “What if you couldn’t get more than 20% commission in year 1 and you got a certain percent each year after that?”
“I would discourage you from revolutionizing the entire compensation structure of the industry,” said Michael Lovendusky, an ACLI representative. “You could put everyone on salary and it would still not prevent unsuitable sales.”
In related news, the NAIC’s Suitability of Annuity Sales Working Group met to review reports regarding the sale of annuities to seniors.
The NAIC already has 2 versions of a suitability model that are in place in about 35 states. One version focuses strictly on the suitability of sales to consumers ages 65 and over. A second version expands on the original version to include all consumers.
Insurance regulators in states such as Florida, Iowa, New York and Wisconsin are asking the Life & Annuities Committee to look into the possibility of creating a more comprehensive model that would include matters such as misuse of professional designations in efforts to market to seniors.
Kim Shaul, who represented Wisconsin, said her state has set up an annuities suitability advisory committee and has found that older adults do appear to be the focus of annuity sales, with 76% of new annuities sold to those 65 years of age and older.
Shaul said annuity sales problems that occur in Wisconsin include inadequate disclosure; poor explanations of surrender charges; excessive stress on the initial interest rate, even though that rate is not a guaranteed rate; and lack of discussion about the free-look period.
James Mumford, an Iowa regulator, said his state uses the NAIC suitability model, a model disclosure regulation and agent training requirements to ensure suitability.
Iowa regulators also are participating in a collaborative effort on indexed annuities with the American Council of Life Insurers, Washington, and NAIC-funded consumer advocate Brenda Cude.
Mary Beth Senkiewicz, a Florida regulator, described a new Florida law, which makes twisting and churning a misdemeanor in the first degree, and willfully submitting a fraudulent signature a felony in the 3rd degree. The effective date for the new law will be Jan. 1, 2009, or whenever the final rule is adopted.