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.