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West Coast Is an Annuity-Suitability Update Desert: NAIC Map

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What You Need to Know

  • Eight states have adopted the NAIC's update.
  • Seven are considering adopting the update.
  • Thirty-four jurisdictions are grayed out.

Texas may soon adopt an annuity sales standard update developed by the National Association of Insurance Commissioners.

But New York state has gone its own way, and, as of March 25, Illinois, Pennsylvania and the entire West Coast had no noteworthy adoption efforts in the pipeline. California, Oregon and Washington were sticking with the annuity suitability rules already in effect.

For now, the West Coast, and a belt stretching from Utah to New Jersey, look like annuity suitability update deserts.

A team at the Annuity Suitability Working Group, an arm of the NAIC, has told the story with a new State Adoption Map, on the working group’s section of the NAIC website.

The Big Picture

The working group is using the map to track implementation of the 2020 revisions to the Suitability in Annuity Transactions Model Regulation Act, which is also known as Model 275.

States like Iowa, Arkansas and Arizona have announced what seems like a blizzard of model update adoptions in the past few months, but the map shows that only eight states are shaded red — meaning that they have actually completed work on adopting update laws or regulations.

Seven states are shaded yellow, meaning that they have model update proposals under active consideration.

New York state and Massachusetts appear with blue shading, to indicate that they’ve adopted their own, homegrown annuity sales standards.

Thirty-three states and the District of Columbia appear with gray shading, to indicate that they have not yet started what the Annuity Suitability Working Group sees as active consideration of suitability model update proposals.

The NAIC and Insurance Regulators’ Turf

Congress generally leaves regulation of the business of insurance to the states.

The NAIC is a Kansas City, Missouri-based group for state insurance regulators. It can’t change states’ annuity sales standards directly, but it can develop “models,” or examples, of what the text of a law or regulation might look like. A state can then choose whether or not to use the model when developing its own laws or regulations.

The group began developing its annuity suitability model update in response to efforts by the U.S. Securities and Exchange Commission and some state insurance departments to create tougher rules on annuity seller conflicts of interest, to address concerns that some annuity producers might be selling customers bad annuities, or annuities that were a bad fit for their situations.

It ended up crafting the final version of its model update to fit with the SEC’s Regulation Best Interest.

The NAIC watches closely to see how many jurisdictions adopt all of its models. That said, regulators have an extra reason to track the adoption rate for the annuity suitability model update: States must work toward adopting the new update within five years after adoption of the revisions by the NAIC to maintain their authority to regulate the sale of fixed annuities, according to an analysis by Trinidad Navarro, Delaware’s insurance commissioner.

Red, Yellow, Blue, Gray

The NAIC’s map shows that consideration of the annuity suitability model update appears to be moving ahead in a bipartisan fashion.

In the 15 “red” and “yellow” states, which have adopted or are actively considering updates, six — Delaware, Kentucky, Michigan, Nevada, Rhode Island and Virginia — have Democratic governors, and nine have Republican governors.

In the two “blue” states, which have their own, homegrown annuity sales standards updates, one — New York state — has a Democratic governor, and the other, Massachusetts, has a Republican governor.

Half of the 34 “gray” jurisdictions, where no update measure appeared to be under visible, active consideration as of March 25, have Democratic governors, and half have Republican governors.

(Photo: Shutterstock)