The National Association of Insurance Commissioners’ Annuity Suitability Working Group released a public draft of proposed revisions to the organization’s model regulation for annuity transactions on Tuesday.
The call for public comments follows more than a year of intensive discussion among state representatives in the working group, which intends to revise further and submit a final proposal for review at the group’s NAIC's Fall 2019 National Meeting in Austin, Texas in December, according to Iowa Insurance Division Commissioner Doug Ommen, who is also the Vice Chair of the working group and Iowa’s representative in it.
Ommen told WealthManagement.com that much of the focus of the discussions was on how to best align the NAIC’s best interest standard with the Securities and Exchange Commission’s Regulation Best Interest rule, which was released in June and pertains to investment advisors and brokers dealing in securities.
“Early drafts were not well developed because we wanted to see where the SEC finally landed. We weren’t terribly surprised by their final rule,” he said. “We really ought to be trying to speak the same regulatory language so when compliance systems are built, you’re not using two different glossaries.”
Negotiations on the proposed best interest standard revisions accelerated in the aftermath of Reg BI’s release, and if the proposed revisions are passed by the NAIC, the model regulation would be presented to states for suggested adoption. The working group was tasked with defining and detailing a number of different obligations annuities providers would need to fulfill, including care, conflict-of-interest and disclosure. Unlike New York’s recent regulation cementing a best interest standard for annuities and insurance providers, the NAIC’s model regulation pertains solely to sales of annuities.
Ommen said the working draft defined many aspects of the care and conflict of interest obligations, including a requirement that carriers identify and eliminate bonus incentives that pertain to specific products in a certain period of time, but he also noted that conflicts could be different, and should be managed in different manners. Like the SEC’s Reg BI, the draft also clarifies who (and who is not) subject to a fiduciary standard.
“What we wanted to make clear is while it is a best interest standard, the individual producer has an obligation to use skill and diligence to carry out the desire of the consumer,” he said. “We shouldn’t take it to mean a fiduciary obligation extends to everyone.”
Critics of the working draft included Birny Birnbaum, the executive director of the Center for Economic Justice. During the process, he questioned the importance of aligning with the SEC’s Best Interest standard if it led to weaker standards, and he believed that the draft did not meet the goals the working group strove to achieve.
“Generally, it’s not a particularly consumer-friendly proposal,” he asserted. “The upshot of it is protection for producers and insurers selling their products, as opposed to some protections for consumers for products that are not in their best interest.”