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.

Payment (Image: Allison Bell/TA)

(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.

Catherine Weatherford, president of the Insured Retirement Institute, is one of several commenters who point out that the draft proposes that complying with the Financial Industry Regulatory Authority (FINRA) best interest standard could serve as a “safe harbor.”

A safe harbor is a simple, clear-cut way for an individual or company to comply with a government requirement.

“We note, however, that FINRA does not currently have formal best interest standards,” Weatherford writes.

If the federal government ultimately enforces a best interest standard, it’s not sure what federal agency and what federal laws and regulations might be involved, Weatherford writes.

Any state model needs to accommodate the reality that federal sales standards might change, Weatherford writes.

4. An NAIC proposal to have an insurer enforce sales standards for all products an agent sells could conflict with other consumer-protection rules.

Charles Anderson, executive director of the National Association for Fixed Annuities, writes that proposals for having an insurer oversee all products that an agent sells could limit competition between insurers.

Incentive (Image: Thinkstock)

(Image: Thinkstock)

“Insurance companies can supervise suitability as to the sale of their own products because insurance company compliance departments can take steps to ensure there are reasonable grounds for recommendations and sales of their own products,” Anderson writes.

“But insurance companies do not control independent agents who may sell products for multiple companies,” Anderson adds. “Thus insurance companies do not ordinarily become involved in telling agents which products they can sell and how much they will be compensated in comparison to competitor products and compensation. Supervision of independent agents to ensure they are not influenced by compensation to favor one product over across multiple insurance companies will almost certainly invite antitrust scrutiny.”

5. The proposed standards could be hard on insurers and producers with stubborn customers.

James Szostek and Roberta Meyer write, in a letter on behalf of the American Council of Life Insurers (ACLI), that the NAIC revision rules governing “circumstances under which there is no obligation to determine whether an annuity is suitable” is unclear.

Regulators need to provide relief for an agent who sells an annuity without making any recommendation that the consumer buy an annuity, when “the consumer insists on the purchase of an annuity,” Szostek and Meyer write.

The original, un-revised version of the “no obligation to determine whether an annuity is suitable” provision is better than the current version, Szostek and Meyer write.

6. A provision requiring producers to disclose non-cash compensation, such as cash bonuses, or trips, is unrealistic.

Gary Sanders writes, on behalf of the National Association of Insurance and Financial Advisors, that complying with this requirement would be difficult, if not impossible.

“Producers generally don’t know if they qualify for such compensation, or the amount, until sometime in the future (generally at year-end),” Sanders writes.

7. Producers would need more than six months to adopt any major new changes in standards.

David Stertzer, chief executive officer of AALU, writes that the amount of work needed to implement a change in the standard of care is remarkable.

“Not only must training materials be developed, and thousands of producers trained and certified, but the infrastructure behind developing and processing applications must be redesigned, and new compliance procedures developed and implemented,” Stertzer writes. 

— Read 3 FIA Myths to Unlock For Customers on ThinkAdvisor.


— Connect with ThinkAdvisor Life/Health on 
Facebook and Twitter.