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Full NAIC Adopts Annuity Suitability Model Update

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Members of the National Association of Insurance Commissioners (NAIC) today voted to approve an update to the NAIC’s Suitability in Annuity Transactions Model Regulation (Model Number 275).

The revisions add a requirement for agents, brokers and other annuity producers to “act in the best interest of the consumer when making a recommendation of an annuity,” according to model text.


  • A link to the document packet for today’s NAIC meeting, which includes a copy of the revised suitability model, is available here, under the Meeting Materials tab.
  • An article about life industry groups’ support for the model update is available here.
  • An article about commenters’ reactions to an early draft of the model update is available here.

The model update also extends an existing model provision that states that “nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation.”

The update revises that section to read that, “Nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation or to subject a producer to civil liability under the best interest standard of care lined in Section 6 of this regulation or under standards governing the conduct of a fiduciary or a fiduciary relationship.”

Other model changes add and define terms such as “consumer profile information”; require annuity producers to make “reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity”; and require to a producer to give a consumer about the producer’s scope of practice and relationship with the consumer.

The vote tally was not immediately available.


The NAIC is a Kansas City, Missouri-based group for insurance regulators from all 50 states, the District of Columbia, and five U.S. territories.

States can use its models when developing their own laws and regulations, but they have no obligation to do so.

The original version of the suitability model was approved in 2010. The District of Columbia and most U.S. states have adopted annuity sales standards based on that model.

The Suitability Model Update Project

The U.S. Department of Labor increased regulators’ and others’ interest in financial services sales standards in 2016, during the administration of former President Barack Obama, by posting final fiduciary standard regulations. The department later triggered more interest with fiduciary rule implementation guidelines aimed at annuity sellers.

The administration of President Donald Trump let the Labor Department’s fiduciary standard die in court, in 2018.

The U.S. Securities and Exchange Commission began developing its own sales standard regulation, which led to the birth of Regulation Best Interest.

New York state and other states have developed their own, state-level fiduciary standards.

The NAIC began its suitability model update project in 2017, to try to create a sales standard model that all state insurance regulators could support, to reduce the risk that many states would create their own, incompatible sales standards.

“The NAIC believes a high degree of harmonization across regulatory platforms would be beneficial to consumers and the industry, according to an annuity suitability and best interest standard fact sheet developed by the NAIC’s Center for Insurance Policy and Research. “The NAIC hopes to continue a productive dialogue with the SEC, the DOL and other financial regulators as updates to the respective standards of conduct governing the sale of annuity products are considered.”

Reactions to the Update

Many groups for life insurers and annuity producers have strongly supported the NAIC model update and are sending out statements welcoming final passage.

Wayne Chopus, president of the Insured Retirement Institute (IRI), said he would like to see states adopt the model revisions quickly.

“The NAIC model regulation is a significant enhancement to the standard that applies when producers recommend annuities to their clients,” Chopus said in the IRI statement.  “Strong, consistent regulation is important to protect consumers and to preserve consumers’ choice of financial advice and products that meet their financial and retirement planning needs.”

Susan Neely, president of the American Council of Life Insurers (ACLI), said approval of the model marks a big step toward making sure that consumers nationwide receive strong, harmonized protections when they receive financial guidance.

“The National Association of Insurance Commissioners (NAIC) — made up of each state’s head insurance regulator — virtually unanimously adopted a model regulation that puts consumers’ interests first,” Neely said. “The NAIC’s Suitability in Annuity Transactions Model Regulation makes sure that consumers receive better information, in plain English, to help them make informed decisions, while preserving access to valuable financial services. And it brings the regulation in closer alignment with the SEC’s Regulation Best Interest.”

Like Chopus, Neely is calling for states to adopt the new NAIC standards quickly.

“A dozen states or more could do so in 2020,” Neely said. “Making the NAIC model the law of the land in the states is critical. The more states that enact a harmonized standard of care, the better off consumers will be.”

Linda Lacewell, the superintendent of the New York Department of Financial Services, voted against the model update.

A statement about her reasons for voting against the model update was not immediately available.

Because New York state has such a large financial services sector, and it has been one of the leaders in the group of states developing state financial services sales standards, its opposition to the model could be a sign that implementation may face friction in states where support for the fiduciary rule concept has been strong.

Birny Birnbaum, the executive director of the Center for Economic Justice, called the model update “one of the most anti-consumer actions the NAIC has taken.”

The model lets producers present themselves as working in consumers’ best interest without actually requiring them to work in consumers’ best interest, and the consumer disclosures now required appear to do more to protect insurers and producers against lawsuits than to help consumers, Birnbaum said.

Another problem is that the NAIC has not talked to disclosure design experts about making the disclosures easier to understand, Birnbaum said.

“They simply don’t take disclosures seriously,” Birnbaum said.

— Read What the Heck Is a ‘Financial Instrument’: Annuity Model Commenter, on ThinkAdvisor.

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