Insurance Regulators May Update Annuity Sales Model Amid DOL Fiduciary Rule Uncertainty

Labor Department officials have been trying to set standards for the sale of annuities and other products to federally regulated retirement plans and arrangements.

Traditionally, states have been responsible for regulating the sale of insurance products, including annuity contracts.

Each state sets its own rules for insurance sales. The NAIC can propose models, or examples of what an insurance law or insurance regulation might look like. The NAIC cannot require states to adopt its models. Adoption rates vary widely.

Thirty-nine states and the District of Columbia have adopted the complete 2010 version of the NAIC’s annuity suitability model. Nine jurisdictions, including North Carolina and Pennsylvania, have not adopted the 2010 update, according to an NAIC staff report.

The DOL fiduciary rule would require annuity sellers to avoid any potential conflicts of interest, and to put the interests of the buyers ahead of their own. Sellers would also have to disclose any conflicts that might exist. In practice, the rule and related regulations could make earning commissions from annuity sales difficult.

The 2010 version of the NAIC’s annuity suitability model requires insurers and annuity sellers to go through an extensive verification process to make sure that an annuity will be suitable for the consumer thinking of buying the annuity. The seller is supposed to consider information such as the consumer’s financial status and investment objectives. The insurer is supposed to review all recommended annuity transactions for suitability at the time of sale.

— Read Did Warren Overreach in Blasting Annuity Sales Perks? on ThinkAdvisor.