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State Regulator Group Keeps Life Out of Sales Standards Project

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One of the big questions hanging over state insurance regulators this weekend was what regulators will do about the scope of any new insurance sales standards.

Members of the National Association of Insurance Commissioners converged in Boston Saturday for their four-day summer national meeting.

The NAIC’s Annuity Suitability Working was continuing to work on an update of the NAIC’s current sales standards model, which applies only to the sale of annuities.

Regulators in New York state and some other states want to see the same standards apply to sales of both annuities and life insurance products.

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

Members of the working group decided, at a session held on Sunday, to keep their focus on annuities. For now.

The working group would be updating the Suitability in Annuity Transactions Model Regulation (Model Number 275). That’s the model that requires insurers and financial professionals to verify that any annuity sold to a consumer suits that consumer’s needs.

At the Sunday session, “the working group decided that considering expanding Model Number 275 to include life insurance products was beyond the scope of its current charge,” according t the working group’s summary.

The working group concluded that deciding whether to add life insurance products to the sales standards project is something its parent committee, the NAIC’s Life Insurance and Annuities Committee, can handle.

Members of the parent committee agreed at their own meeting to discuss the idea of extending the scope of the sales standards model at “an appropriate time in the future.”

Links to resources related to the session, including the meeting summary, are available here.

What the NAIC Is

The NAIC is a Kansas City, Missouri-based group for state insurance regulators.

The NAIC does not create laws or regulations directly, but states often start with NAIC models when developing their own laws and regulations.

In some cases, states set up mechanisms that cause some NAIC rules and procedures, such as accounting procedures, to take effect within their borders automatically.

Why the Sales Standards Project Matters to Agents

The administration of President Donald Trump has let the U.S. Department of Labor’s fiduciary rule die.

But the U.S. Securities and Exchange Commission is now working on its own sales standards rule.

New York state recently adopted a strict “best interest” sales standards update and extended its annuity sales standards to apply to life insurance products. Some other states are working on their own sales standards projects.

The Annuity Suitability Working Group model update could determine how strict the typical state’s sales standards regulations are; how clear, detailed and objective the typical state’s standards are; and what products and activities come under the standards.

Life insurers, financial professionals and industry groups typically ask for clear, detailed standards.

Groups representing investors often ask for more general standards, in an effort to reduce the odds that companies will obey the specific provisions of the law without doing much to improve how they treat customers.

Agent Comp Disclosure: The Next Generation

Regulators are also talking about many other aspects of life and annuity sales standards.

One hot issue is agent, broker and advisor compensation disclosure.

Many financial professionals have argued that meeting many comp disclosure requirements is difficult, because overall compensation may depend partly on future events. They would ike to see any comp disclosure requirements narrowed, or eliminated.

Birny Birnbaum, the executive director of the Center for Economic Justice, has come up with an idea for expanding comp disclosure requirements, rather than narrowing them.

Birnbaum talked about the proposal at a recent Annuity Suitability Working Group meeting in Kansas City.

Birnbaum told the working group members that the group should consider requiring a producer or insurer to provide a comparison of the compensation the producer could receive from all of the products the producer could offer the consumer, according to a meeting summary.

— Read RAAs: Birny Birnbaum Weighs Inon ThinkAdvisor.

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


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