Illinois and Georgia became the 32nd and 33rd states to adopt rules requiring a best interest standard for annuity sales and recommendations based on a model designed by the National Association of Insurance Commissioners (NAIC).
Illinois’ Department of Insurance and Director Dana Severinghaus adopted the rule Feb. 14, according to the American Council of Life Insurers, with President and CEO Susan Neely urging more states to follow suit.
“The new rule in Illinois adds momentum to the nationwide push for protections that safeguard consumers while also ensuring that middle- and working-class families retain access to annuities,” she said.
The NAIC model rule, called “Suitability in Annuity Transactions Model Regulation,” was originally finalized in 2020 and offered states a template to craft their own annuity regulation or legislation. The rule purported to align state-level oversight of annuity sales and recommendation with the regulation of securities on the federal level via the Regulation Best Interest rule from the Securities and Exchange Commission (SEC).
While the NAIC model mandated that agents couldn’t put their own financial interests ahead of consumers, it also mirrored Reg BI in not setting a fiduciary standard for agents recommending or selling annuities.
The model rule had its critics, including Birny Birnbaum, the executive director for the consumer advocacy organization Center for Economic Justice, who called the rule “one of the most anti-consumer actions” taken by the commission, arguing its best interest standard was woefully insufficient.
“Basically, it takes the suitability standard of care, and calls it the best interest standard of care, with one substantive change,” he said at the time.
On the model being finalized, Iowa became the first state to pass its own rule based on it in February 2020. Most recently, Tennessee adopted its own rule based on the model, finalizing it in January.
According to Sarah Wood, the director for state policy and regulatory affairs at the Insured Retirement Institute (IRI), as many as 40 states may sign on by the year’s end. Wyoming is close to passing its own regulation, and Nevada, Utah, West Virginia, Oregon and Washington all have active proposals to adopt rules based on the NAIC model.