California Insurance Commissioner Ricardo Lara has expressed concerns about the National Association of Insurance Commissioners’ new suitability model update, but — unlike Ne w York state’s top insurance regulator — he voted for it.
Lara talked about his views on the NAIC’s revised Suitability in Annuity Transactions Model Regulation (Model Number 275) Thursday, in a statement.
California has been an active participant in promoting the strongest standards possible to protect consumers when purchasing annuities.
In California, some of our standards are stronger — including a provision that requires that any annuity be in the best interest of consumers overall.
California supports and would prefer a standard that clearly establishes a fiduciary duty that producers sell a product that puts the consumer first — instead of commissions or other producer incentives.
While I believe this model law is not perfect, I am voting in favor of the draft amendments to the Model Regulation because they contain significant amendments that afford increased consumer protections over the existing protections. Although some of the draft amendments are problematic, over all for California, it will be better for consumers than the existing Model Regulation.
The NAIC is a Kansas City, Missouri-based group for the top insurance regulators in the 50 U.S. states, the District of Columbia, and five U.S. territories. It cannot change state sales standards itself, but states can choose to start with NAIC models when developing their own sales standards laws and regulations.
The NAIC first approved the suitability model in 2010. The group began working on in update in 2017, after a U.S. Department of Labor effort to set a fiduciary standard for financial services sales, and a standard requiring financial services sellers’ to put consumers’ interests first, stalled.
Many life insurance issuer and producer groups have given the NAIC’s standard update strong support, arguing that it will improve annuity sellers’ disclosures, and require annuity sellers’ to look more carefully at clients’ needs, without banning sales commissions, or exposing annuity sellers to unreasonable, poorly defined legal risk.
Representatives for the Center for Economic and the New York State Department of Financial Services have argued that the revised version simply requires more paperwork, and does not seem to provide meaningful new protections for consumers.
Linda Lacewell, the New York department’s superintendent, voted against the model update during the final vote on the update, which took place Thursday, during a conference call meeting. Lacewell was not immediately available to comment on the vote.
The NAIC will not provide an official vote tally until it releases the meeting minutes, sometime before the NAIC’s spring national meeting, which is set to start March 21 in Phoenix.
— Read What the Heck Is a ‘Financial Instrument’: Annuity Model Commenter, on ThinkAdvisor.