7 Objections to the States' Annuity Sales Standard Proposal

The groups that represent annuity makers, distributors and buyers spent years roasting U.S. Department of Labor officials over the DOL’s fiduciary rule.

Now that the DOL has put enforcing the rule’s implementation guidelines on hold for at least 18 months, a team at the National Association of Insurance Commissioners is getting the angry comment letters.

The NAIC’s Life Insurance and Annuities Committee recently asked for public comments on proposed revisions to the NAIC’s Suitability in Annuity Transactions Model Regulation. 

(Related: 3 Things to Know About the Fiduciary Rule’s Little Brother)

The NAIC has no direct ability to change states’ insurance laws and regulations. But states often use NAIC models when they are developing their own proposals, and, in some cases, they use statutes or regulations to conform with some NAIC actions, such as changes in insurance accounting guidelines, automatically.

The Life Committee’s Annuity Suitability Working Group developed the proposed suitability model revisions in response to suggestions that states should be in charge of any updates to annuity and life insurance sales standards, and in charge of any effort to move to a “best interest” standard, or a standard requiring the people and entities involved with offering retirement savings product to put the interests of the retirement saver first. The Life Committee may consider draft proposed revisions in March, in Milwaukee, at the NAIC’s spring meeting.

A copy of the revised model is available here.

The working group has posted a collection of comment letters here.

Here’s a look at seven objections to the proposed changes, drawn from the comment letters.

1. The proposed revision would simply require sellers to disclose their financial incentives.

The NAIC provides stipends for some people who represent consumers’ interests in NAIC proceedings, and other NAIC consumer reps pay their own way.

Five consumer reps, and 13 consumer groups, write in a comment letter that the proposed revisions would not set a clear, enforceable best interest standard, and would not actually lead to any changes in how annuity sellers and distributors are paid.

(Image: Allison Bell/TA)

The proposals simply requires producers to disclose financial incentives that could create conflicts, and to not act on those conflicts, the consumer reps write.

“Experience tells us, however, that directing producers not to base their recommendations on their own financial interests, while leaving in place incentives that encourage them to do so, will not significantly reduce the harmful impact of conflicts,” the reps write.

Studies have shown that conflict-of-interest disclosures do not do much to influence consumer behavior, and that the disclosures may backfire, by making consumers think they should help advisors who open enough to disclosure their interests, the reps write.

2. The suitability standards may not be worth the fuss.

Kim O’Brien, the chief executive officer of Americans for Asset Protection (AAP), a group that represents providers of asset protection products, writes that consumer complaints related to suitability problems involving non-securities annuities are rare.

State insurance regulators received 116,235 consumer complaints in 2017, and just 290 involved fixed-rate or indexed annuities, according to O’Brien’s analysis of NAIC data.

The number of complaints involving non-securities annuities was down from 354 in 2016.

The number of consumer complaints related to suitability fell to 112 in 2017, from 186 in 2016, O’Brien writes.

3. The current NAIC proposal depends on knowledge of what will happen in the future.