State Insurance Regulators Work to Protect Consumers Who Buy Annuities; NAIC Releases Statement on DOL Fiduciary Rule Proposal
The National Association of Insurance Commissioners (NAIC) released the following statement today on the proposed fiduciary rule announced October 31 by the Biden-Harris Administration and the Department of Labor (DOL):
“We fundamentally disagree with the White House’s characterization of state consumer protections for annuity products. The White House press statement that oversight of these products ‘varies state by state’ and provides ‘inadequate protections and misaligned incentives’ suggests either ignorance of, or willful disregard for, the hard work of the 40 states and counting that have worked diligently to enhance protections for consumers by adopting the NAIC’s Suitability in Annuity Transactions Model Regulation.”
Congress in 1945 gave the states the responsibility to regulate all insurance transactions, which include annuities. Since 2003, state insurance regulators have overseen the sale of annuities to ensure products sold to consumers are suitable for them, based on a review of their needs. The Suitability in Annuity Transactions Model Regulation (#275) serves as a basis for this regulatory framework. Congress in the 2010 Dodd-Frank Act reconfirmed the states’ regulatory responsibility over annuities.
Significantly, 40 states have now adopted the NAIC’s February 2020 updates to the Suitability in Annuity Transactions Model Regulation, which requires that all recommendations by agents and insurers must be in the best interest of the consumer, and that agents and carriers may not place their financial interest ahead of the consumer's interest in making a recommendation. The states revised the annuity standards to establish best interest requirements similar to those adopted by the Securities and Exchange Commission for securities dealers in 2019. The states specifically require that any insurance agent and carrier must act with “reasonable diligence, care, and skill” in recommending an annuity, and the recommended annuity must appropriately address the specific consumer’s insurance and financial situation and objectives.
The regulatory environment has changed dramatically since the last time the Department of Labor made a similar fiduciary rule proposal, but the states’ goals have always been to seek clear, enhanced standards for annuity sales so agents and carriers act in the best interests of consumers and consumers understand the products they purchase, understand the compensation paid to the insurance agent, are aware of any material conflicts of interest, and are assured those selling the products do not place their financial interests above consumers' interests.
The NAIC Annuity Suitability (A) Working Group, which was appointed in 2017 to review and revise Model #275 to promote greater uniformity across NAIC Member jurisdictions, has also been working with states to help coordinate an implementation review of the top 25 annuity writers. The states’ best interest requirement that a recommendation address a consumer’s retirement objectives already recognizes the heightened expectations for 401(k) retirement funds.
About the National Association of Insurance Commissioners
As part of our state-based system of insurance regulation in the United States, the National Association of Insurance Commissioners (NAIC) provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers. The U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally.