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State Insurance Regulators Could Set Their Own Best Interest Standard

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State insurance regulators are preparing to discuss a proposal for adding a best interest standard to their own annuity sales standards model.

Earlier this year, the National Association of Insurance Commissioners set up an Annuity Suitability Working Group to look at the NAIC’s Suitability in Annuity Transactions Model Regulation (Model Number 275).

The working group plans to look at a draft model revision that includes best interest provisions on Sunday, during a session at the upcoming NAIC fall national meeting in Honolulu.

(Related: Insurance Regulators May Update Annuity Sales Model Amid DOL Fiduciary Rule Uncertainty)

The session agenda lists Dean Cameron, the Idaho insurance director, as the author of the draft.


The NAIC is a group for state insurance regulators. It has no direct ability to change state laws or regulations, but states often start with NAIC models when developing their own insurance proposals.

The Annuity Suitability Working Group is part of the NAIC’s Life Insurance and Annuities Committee. Committee members decided to form the working group in February, during a conference call meet, in response to efforts by President Donald Trump to delay implementation of the U.S. Department of Labor (DOL), and, possibly, to change the rule and related regulations.

The NAIC approved the current version of the annuity suitability model in 2010.

Thirty-nine states and the District of Columbia have adopted a complete version of that model, according to an NAIC staff report posted earlier this year.

The DOL rule would require sellers of retirement products to put the interests of the clients first.

The suitability standard requires the seller of an annuity to verify that the annuity suits the needs of the clients.

The New Draft

The suitability working group has included a copy of the draft model revision in a meeting session document packet.

Provisions in the draft model revision would:

  • Change the name of the model to the “Suitability and Best Interest Standard of Conduct in Annuity Transactions Model Regulation.”

  • Add a definition of “best interest,” and define “best interest” to mean that, “at the time the annuity is issued, acting with reasonable diligence, care, skill and prudence in a manner that puts the interest of the consumer first and foremost.”

  • Note that “best interest” does not “mean a resulting recommendation is the least expensive annuity product, or the annuity product with the highest stated interest rate.

  • Add a new section on the duties of insurers and insurance producers, which would include consumer information collection and conflict disclosure requirements.

  • Prohibit producers from receiving “more than reasonable cash compensation” in connection with making a recommendation.

—Read H.R. 4173: Senate Conferees Mull Fiduciary Standard Issue on ThinkAdvisor.

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