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Annuity Rules Should Apply to Investment-Type Life Products: Consumer Reps

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Consumer group representatives say any new sales rules that apply to investment-type annuities should also apply to investment-type life insurance products.

The group reps also say that any new life insurance and annuity sales rules should actually reduce the sellers’ potential conflicts of interest, not simply increase disclosure requirements.

(Related: Indexed Universal Life Sales Rise 3.4%: Wink)

“The same standard of care — best interest of the consumer — is clearly as appropriate for investment-type life insurance — for example, indexed universal life — as it is for annuity products,” the consumer reps write in a comment letter sent to the Annuity Suitability Working Group.

“A uniform standard of care across all types of investment products means both consistent consumer protections and a level regulatory framework preventing one type of investment product from regulatory arbitrage,” the reps write. 

The working group, part of the National Association of Insurance Commissioners, is looking at how regulators should respond to recent efforts by the U.S. Department of Labor and the U.S. Securities and Exchange Commissioners to change sales and marketing standards for financial products, including annuities.

The working group included the consumer reps’ letter in a packet of documents for the NAIC’s recent summer meeting, in Philadelphia. The working group held a session at the meeting Sunday.

The NAIC provides funding for some groups to speak for consumers in NAIC proceedings, and it also provides an official role in NAIC proceedings for some consumer group reps who have their own sources of funding.

The group calling for insurance regulators to defend tough life and annuity sales standards includes well-known reps such as Birny Birnbaum, Bonnie Burns and Timothy Jost, and groups such as the AFLI-CIO, Better Markets and Consumers Union.

Annuity issuers and distributors have complained that the new DOL fiduciary rule, and related interpretations, will make traditional, commission-based annuity sales difficult. Issuers and distributors argue that the high cost of providing fee-based advice, and of assuming fiduciary-level responsibility for providing the advice, will shut retirement savers of modest means out of the annuity market, at a time when aging baby boomers have a desperate need to insure their retirement savings against longevity risk.

The Annuity Suitability Working Group has been considering a variety of alternatives to the DOL fiduciary rule, including updating the NAIC’s own annuity suitability sales standards, and a “Uniform Standard of Care” proposal offered by the American Council of Life Insurers.

The ACLI Uniform Standard of Care proposal would apply to all sorts of financial services products, and it would emphasize an increase in disclosure requirements.

The reps say sellers must offer consumers products that are in their best interest, not simply suitable for the consumers.

“Relabeling ‘suitability’ as ‘best interest’ would be a sham,” the reps say.

The Annuity Suitability Working Group has also been talking to DOL officials and at the U.S. Securities and Exchange Commission about how to proceed.

Timothy Hauser, a DOL official, told the working group during a conference call meeting in July the DOL wants more information from insurance regulators, and that it has had trouble getting good data on insurance products. The initial DOL analysis suggested that its fiduciary rule would have no adverse impact on the insurance marketplace, according to the working group summary of Hauser’s comments.

Joanna Nagel, an Iowa regulator who serves on the working group, said during the same call that the SEC is still gathering information about product sales standards but seems to be open to holding future discussions with state insurance regulators.

— Read Skip Schweiss: The Real Reason the Industry Is Fighting the DOL Fiduciary Rule on ThinkAdvisor.