On February 13, 2020, the National Association of Insurance Commissioners (NAIC) in Executive/Plenary session passed sweeping changes to its Suitability in Annuity Transactions Model Regulation (#275), potentially greatly affecting the relationship between insurers, producers, and annuity consumers. The almost unanimous vote to approve the changes to the model regulation mark the conclusion of a three-year editorial process at various groups within the NAIC structure. In 2017, the NAIC first established the Annuity Suitability (A) Working Group to review the model for possible modernization, as units of the federal government like the Department of Labor and the Securities and Exchange Commission were becoming active in establishing enhanced sales standards for various other financial products.
The enhanced Model Regulation #275 includes a new best interest standard of care that producers and insurers can meet if they satisfy four requirements: 1) a care obligation; 2) a disclosure obligation; 3) a material conflict of interest obligation; and 4) a documentation obligation. Producers and insurers are required to act in the best interest of the consumer under the known circumstances at the time an annuity recommendation is made, without placing their financial interests ahead of the consumer’s. This standard does not rise, however, to the level of a fiduciary standard. The revisions to the model regulation also include a safe harbor provision for sales made in compliance with comparable standards by financial professionals that are regulated as broker-dealers, investment advisers, or plan fiduciaries.
Only New York’s Department of Financial Services voted against the revisions to the model regulation, explaining that they would prefer the NAIC to take a more activist role. Instead, New York suggested the NAIC should proceed along the lines of its Regulation 187, which imposes an absolute best interest standard and also applies to the sale of life insurance. Meanwhile, other commissioners at the meeting expressed support for a more consensus based, incremental approach in explaining their votes for the revisions. Thus, it can be expected that this topic is not settled, and further potential pro-consumer enhancements will be taken up by the NAIC in the coming months and years.
With the passage of the changes to Model Regulation #275 by the full NAIC, the industry can expect a flurry of activity at the state level over the next several years as departments move to modernize their respective regulations. Currently, regulations matching or similar to the prior existing Model Regulation #275 are in place in all but a handful of states and territories.
The text of the revised Model Regulation #275, along with the changes from the prior model, can be found on the NAIC’s website.
The post NAIC Overwhelmingly Approves Enhancements to Annuity Suitability Model Regulation appeared first on Insurance & Reinsurance.
Visit our Insurance & Reinsurance Blog for the latest news and developments.Visit the blog
Sign up for our newsletter and get the latest to your inbox.