TRADE GROUPS OFFER CHANGES TO NAIC MODEL REGULATION

Posted on October 1, 2019

Latest Draft in “Broad Alignment” with SEC’s Regulation Best Interest

Proposed Changes
Cover Letter


WASHINGTON, D.C. – The Insured Retirement Institute (IRI) and seven other trade associations today filed comments on a proposed National Association of Insurance Commissioners (NAIC) model regulation saying that they remain “committed to a harmonized best interest standard of care for annuities to benefit consumers seeking guaranteed lifetime income in retirement across all regulatory platforms.”

The groups added that they support the NAIC’s most recent draft proposed new framework for the model regulation that, “in broad alignment with the Securities and Exchange Commission (SEC) Regulation Best Interest, would define how to “act in the best interest of the consumer” by providing four “buckets” of obligations (care, disclosure, conflict of interest, and documentation obligations) that must be satisfied.

The other trade organizations joining with IRI to file the comments are American Council of Life Insurers, Association for Advanced Life Underwriting, Committee of Annuity Insurers, Financial Services Institute, Indexed Annuity Leadership Council, National Association for Fixed Annuities, and the National Association of Insurance and Financial Advisors.

The groups’ comments offer several recommendations to the current NAIC draft that modify or clarify certain provisions. Highlights of the recommendations include:

  • Urging the NAIC not to modify the definition of “recommendation” in the model regulation that would extend its requirements to in-force annuity transactions.
    • The groups said that they are “gravely concerned that doing so will have a detrimental impact on consumers and could negatively affect access to affordable products and information about annuities.”
  • Opposing inclusion of a required timeframe for review of a consumer’s “consumer profile information.”
    • The comments noted that the producer already is required to request consumer profile information in connection with a recommendation and to have a reasonable basis to believe the recommended annuity would effectively address the consumer’s financial situation, insurance needs, and financial objectives in light of the consumer’s consumer profile information. Federal rules already require that broker-dealer customer be furnished his or her account record at least every 36 months. 
  • Opposing inclusion of language applying the model regulation to any producer who “materially participated” in the transaction.
    • The trade groups believe this will create too much uncertainty in the marketplace as to when a producer is considered to have “materially participated” in a transaction.
    • A state insurance regulatory authority will always have jurisdiction over, and ample tools to sanction, a senior producer in those circumstances without needing to rely on this provision.

The NAIC Annuity Suitability Working Group is revising the Suitability in Annuity Transactions Model Regulation. The purpose of this regulation is to require producers to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuity products so that the insurance needs and  financial objectives of consumers at the time of the transaction are appropriately effectively addressed.

“We appreciate the NAIC’s inclusive process to revise its model regulation for financial professionals’ standard of conduct,” said Jason Berkowitz, IRI chief legal and regulatory affairs officer. “We look forward to continued dialogue in this process to complete work on the revised model in the coming months.”

IRI also filed separate comments with the NAIC on an additional issue to modify the current safe harbor for producers who are subject to standards that meet or exceed the NAIC standards.

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