The Insured Retirement Institute (IRI) says state insurance regulators’ sales standard proposal includes a great feature for financial professionals: a provision that may protect annuity producers from having to comply with multiple sets of sales standards.
Members of the National Association of Insurance Commissioners’ Life Insurance and Annuities Committee endorsed the proposal — an update of the NAIC’s annuity suitability model — Monday, during a conference call meeting.
To become an official NAIC model update, the proposal must win approval from the NAIC’s Executive Committee and from the NAIC’s plenary. The plenary is the body that represents all voting members of the NAIC.
If the NAIC adopts the model update, each state will get to decide for itself whether it wants to implement the update.
The updated model would require annuity sellers to put consumers’ interests first, disclosure potential conflicts of interest, and get more information about the consumers, to improve efforts to assess how will specific products might suit the consumers’ needs.
But the updated model would continue to allow the use of commission-based compensation arrangements.
Proponents say the update could also help states provide an alternative to efforts by states like Massachusetts and New York to impose standards that are similar to, or tougher than, the fiduciary rule that was adopted by the U.S. Department of Labor under former President Barack Obama and then blocked in the federal courts under President Donald Trump.
The Safe Harbor Provision
IRI says the proposed model update also includes a safe harbor provision for insurance producers who sell annuities.
The provision would affect annuity producers who are subject to, and comply with, a set of sales standards other than the NAIC suitability standard, such as the federal Investment Advisers Act, or the U.S. Securities and Exchange Commission’s Regulation Best Interest standard. Regulation BI is set to take effect July 1, 2020.
The proposed model update would let an insurance producer comply with just one of those sets of standards, rather than struggling to understand, and comply with, two or more sets of standards.
“This will avoid duplicative compliance requirements for those who already comply with rigorous standards,” according to IRI.
IRI says it recommended that the NAIC include that safe harbor language in the proposed model update.
IRI says it expects the NAIC Executive Committee and Plenary to approve the model update in early 2020.
If the NAIC approves the update, “IRI is prepared to work immediately with states to quickly implement this important new consumer protection regulation,” Jason Berkowitz, IRI’s chief legal and regulatory affairs officer, said in a statement.
One possible obstacle is that the Center for Economic Justice has argued that the proposed model update focuses too much on disclosures and too little on new rules for producers. That sentiment could slow or block the NAIC approval process, or limit how many states adopt the model updates if the updates do get final NAIC approval.
Links to comments about the version of the suitability model update that came up at the Life Insurance and Annuities Committee meeting today are available here, under the Related Documents tab.
— Read What If Annuity Prospects Hate All Those Questions?, on ThinkAdvisor.