The National Association of Insurance Commission has revised an annuity consumer protection model and announced plans to hold hearings on the growing secondary market for annuities.
Members of the NAIC, Kansas City, Mo., voted this week at the spring meeting in Denver to adopt revisions to the Suitability in Annuity Transactions Model Regulation.
The underlying suitability model requires annuity sellers to verify that the annuities sold to consumers suit the needs of those consumers. The changes to the model:
- Clarify that the insurer is responsible for compliance with the model’s requirements, even if the insurer hires another entity to help with compliance.
- Require the review of all annuity transactions.
- Establish both general and product-specific training requirements for producers.
The NAIC’s Life Insurance and Annuities Committee developed the changes. State regulators and legislatures are responsible for implementing the model revisions.
The Center for Economic Justice, Austin, Texas, has argued that the NAIC should have used a more open process to develop the model revisions, but it has expressed strong support for the idea of having insurers take responsibility for the issuance of suitable recommendations, and not just responsibility for having a supervisory system in place.
The American Council of Life Insurers, Washington, has praised the NAIC goal of adopting strong, uniform annuity suitability standards throughout the United States.
But the new NAIC model revisions “will further this shared goal of uniformity only if state interpretation and implementation is consistent,” the ACLI says. “Therefore, we look forward to continuing to work with the NAIC to further develop appropriate interpretive guidance that promotes uniform adoption of the revised suitability model and ensures that the oversight of annuity recommendations is consistent across states.”
The National Association of Insurance and Financial Advisors, Falls Church, Va., is still reviewing the model update, but “we in principle think it’s important and enhances protections for consumers,” NAIFA Senior Counsel Ron Panneton says.
Like the ACLI, NAIFA believes it is important that states adopt the revisions in a uniform fashion, to avoid a patchwork effect, Panneton says.
The National Association of Independent Life Brokerage Agencies, Fairfax, Va., proposed several changes to a draft of the suitability model revisions. The NAIC made the changes, according to NAILBA Chair Mark Rosen.
Thanks to the changes, broker-dealers that are registered with the Financial Industry Regulatory Authority, Washington, “many of whom are NAILBA members, will automatically be in compliance with this new model,” Rosen says.
In other annuity regulatory news, the NAIC’s Life Insurance and Annuities Committee plans to hold a public hearing in Washington on the emergence of “stranger-originated annuities” and “stranger-owned annuities.”
The NAIC says the hearing will focus on allegations that some firms are inducing seniors and terminally ill patients to buy annuities largely for the benefit of investors or intermediaries in the secondary market for annuities. NAIC officials says hearing participants will discuss the following questions about the transactions:
- Are the transactions lawful?
- How do the transactions affect insurable interest?
- What level of consumer protection do current model laws and regulations provide?
- How could new models be developed and existing models tightened?
The hearing will include testimony from consumers, state regulators and industry representatives, officials say.
Additional information was contributed to this article by Allison Bell.