Pennsylvania Adopts NAIC Annuity Suitability Update
California, New York and Florida are still outside the fold.
Pennsylvania has given a big boost to efforts by the National Association of Insurance Commissioners to support the SEC’s Regulation Best Interest financial services sales standards.
Gov. Tom Wolf recently signed Senate Bill 772 — legislation implementing the NAIC’s annuity suitability model update in the Keystone State.
Wolf’s signature means that Pennsylvania is the highest-population state with a Democratic governor that has adopted the suitability model update.
California, Illinois and New York have not adopted the model. Florida, a state with a Republican governor, is another state that us now outside the fold.
Texas is the highest-population state that has signed on. A total of 19 states have now adopted the model.
For agents and brokers who collect commissions for selling annuities, Pennsylvania’s move may increase the odds that insurers will continue to pay sales commissions to annuity sellers.
The American Council of Life Insurers, the National Association of Insurance and Financial Advisors Pennsylvania and the Insurance Federation of Pennsylvania put out a joint announcement welcoming Pennsylvania’s adoption of the suitability model update.
Suitability Basics
The NAIC is a Kansas City, Missouri-based group for insurance regulators. The group designed its model update to complement Reg BI, rather than a fiduciary standard-based retirement investment product sales regulation developed by the Department of Labor during the administration of President Barack Obama.
When Donald Trump was president, his administration refused to defend the Obama-era regulation when a federal appeals court blocked it.
The administration of President Joe Biden appears to be preparing to revive efforts to implement a fiduciary standard.
Many say a shift to a fiduciary standard for the sale of annuities would eliminate or sharply limit use of commission-based annuity sales compensation arrangements.
NAIFA Pennsylvania President Carina Hatfield said in a comment about the sales standards conflict that an analysis shows that a fiduciary-only approach, which would require the annuity sector to move to a fee-only compensation model, would reduce the savings of about 3 million people by $140 billion.
“Unlike a fiduciary-only approach that limits choices for consumers, the bill signed into law offers strong protections while making sure savers, particularly financially vulnerable middle-income Americans, can access information about options for long-term security throughout retirement,” Hatfield said.
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Logan Square, in Philadelphia. (Photo: Adobe Stock)