State insurance regulators are trying to polish a document that could eventually provide a middle annuity sales standards option.
The regulators, who are members of the National Association of Insurance Commissioners’ Annuity Suitability Working Group, are trying to update an existing sales standards model to reflect concerns about annuity sellers’ potential conflicts of interest.
An updated NAIC suitability model could serve as an alternative to “best interest” proposals from groups that want to restrict everything, and proposals, or resistance efforts, from groups that want to allow everything.
(Related: State Regulators Push Annuity Sales Standards Project One Step Forward)
The existing suitability standard requires that the annuity recommendations made suit the needs of the client. The revised model could include a best interest standard that would require an agent or broker to act in the best interest of the consumer, under the circumstances known at the time.
The NAIC is a group for state insurance regulators. It does not have direct authority to change states’ sales standards. But states often start with NAIC models when developing their own insurance and annuity laws and regulations.
The Annuity Suitability Working Group recently collected a final round of public comments on the draft and is preparing to push the draft out to the rest of the NAIC model review pipeline.
The most influential comment may be a “joint trades” letter that came from a group of 8–pound “interest group gorillas” that includes the American Council of Life Insurers, the Committee of Annuity Insurers, the Financial Services Institute, the Indexed Annuity Leadership Council, the Insured Retirement Institute, the National Association for Fixed Annuities, the National Association of Insurance and Financial Advisors, and the Association for Advanced Life Underwriting.
Those groups are the biggest, best-established life and annuity sector organizations, and their letter represents what appears to be a consensus of the views of representatives for both insurers and for financial professionals.
The 24-page PDF appears to be the longest of the seven comments the working group has posted.
Even if the working group or another NAIC panel rejects the gorillas’ recommendations, those recommendations could continue to reverberate in the background, because of the influential nature of the group’s member organizations.
Here are five recommendations from the joint trades letter.
1. The Definition of Recommendation
The joint trades want to change the definition of “recommendation” to refer to “advice provided by a producer to an individual consumer to purchase an annuity in accordance with that advice,” from advice provided “that was intended to result or does result in a purchase, an exchange or a replacement.”
The change will clarify that a recommendation is the advice provided, while ensuring that the model regulation requirements apply regardless of the result of the advice being given, the joint trades write in their letter.