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Life Health > Annuities > Fixed Annuities

NAIC to Spotlight Annuity Sales Standard Update Gray Zones

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Many states rushed to adopt an annuity sales rule revision, but big update gaps remain.

As many as 14 states and the District of Columbia are still using the National Association of Insurance Commissioners‘ old sales rules, without strong indications that they will move to the new version soon, according to an NAIC implementation map.

What It Means

Traditionally, states have regulated sales of fixed annuities, or annuities that protect holders against investment-market-related loss of principal.

The U.S. Securities and Exchange Commission has regulated variable annuities.

Some state officials have suggested that the SEC could have the legal authority to begin regulating fixed annuity sales if states fail to move quickly to make the NAIC’s updated sales rules a national standard.

The History

The NAIC adopted the model that now shapes regulation of fixed annuity sales — the Suitability in Annuity Transactions Model Regulation — in 2010. The suitability model requires annuity sellers to verify that the annuities sold to consumers suit those consumers’ needs.

In 2019, the SEC adopted Regulation Best Interest. Reg BI requires annuity sellers to document that they have acted in the best interests of annuity shoppers, rather than putting their own revenue first.

The NAIC adopted suitability model changes based on the SEC’s Reg BI standard in 2020.

Reg BI supporters say that it will let insurers keep traditional, commission-based agent compensation arrangements in place, and that alternative rules, based on a fiduciary standard, would eliminate commission-based annuity sales compensation.

Reg BI opponents contend that the flexibility of that approach may weaken protections for investors.

The Gray Zones

The NAIC’s Annuity Suitability Working Group is preparing to present the implementation map Wednesday, in Tampa, Florida, at the NAIC’s fall national meeting, at an in-person session of the NAIC’s Life Insurance and Annuities Committee.

The map reflects the NAIC’s understanding of state adoption efforts as of Nov. 27, according to the map legend.

The states that are still colored gray, meaning that they appear to be far from implementing the NAIC’s 2020 suitability model changes, includes some high-population states, such as California and Florida, as well as smaller states, such as New Hampshire and Vermont.

Some of the other states in the map’s gray zone are New Jersey, Oregon and Washington, and Indiana, Kansas, Louisiana, Missouri, Oklahoma and Utah.

The District of Columbia is also in the gray zone.

The NAIC marked Georgia as gray, but the Insured Retirement Institute says it believes suitability update adoption is coming in Georgia soon.

Downtown Tampa, Florida. (Photo: Shutterstock)


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