National Harbor, Md.
Regulators decided on a direction for suitability of annuity products even as insurance commissioners tried to calm state legislators’ distress that the National Association of Insurance Commissioners is throwing state insurance regulatory authority to the wolves (read Congress.) Absolutely not, the NAIC is saying. State legislators seem skeptical and are saying ‘show us you’re still on the state team.’ The two issues surfaced during the first day of the NAIC fall meeting here.
Much of the discussion over the approach to suitability centered on whether a new model should be pursued or changes to the existing model accompanied by a guideline, as the American Council of Life Insurers, Washington, is suggesting. A number of regulators are saying that the time to consider a guideline is over and the train has left the station. The ACLI’s Kelly Ireland responded that the train had not left the station and that a discussion would still be valuable.
But, regulators registered their disagreement by making a motion to pursue a regulation and then adopting it. The motion happened quickly with a comment from Joe Musgrove of Arkansas expressing frustration that more effort is being put into form than content. And, a second motion passed the Suitability of Annuity Sales working group. The motion asks its NAIC parent, the Life and Annuities “A” Committee to give the group an extension on its deadline of up to a year. That motion also was adopted.
During the suitability discussion, several interesting points were made. California noted that the majority of complaints to the insurance department from California seniors over annuities have largely focused on surrender charges that are issued upon the death of the annuitant. There needs to be written guidelines to address this problem, according to California.
The latest version of the model released on Sept. 4 is simplified compared with a July 2 version and is patterned after FINRA Rule 2821. And, according to Wisconsin’s Kim Shaul, the penalties section has been revised because of concern that a single misstep could trigger a penalty. Rather, a pattern of abuse will now need to be established. And, with the new draft, an insurer is not required to review every sale but must have a system in place for such a review.
Birny Birnbaum, an NAIC funded consumer who is executive director of the Center for Economic Justice, Austin, Texas, said that a model is preferable to a guideline and said that any model should make sure that “insurers are responsive for outcomes and not just process.”
And, Ron Panneton of the National Association of Insurance Financial Advisors, Falls Church, Va., said that if the new model is put in place with an 8 hour educational requirement, annuity operations should not be shut down until the credits are earned. “NAIFA has never opposed education.” But, he noted the disruptive nature of stopping an operation until producers earned the proper credits. Wisconsin’s Shaul said that she would consider including a “grace period.”
Kim O’Brien of the National Association of Fixed Annuities, Milwaukee, urged regulators to remove the concept of investment from the sale noting how hard NAFA had worked to focus on financial objectives rather than investments.
State Regulatory Authority
A project two years in the making, the National Insurance Supervisory Commission, is angering state insurance legislators at the National Conference of Insurance Legislators, Troy, N.Y. Legislators say that in order for state regulation to remain strong, it is necessary for all state-based groups to work together. State Rep. Brian Kennedy, D-Hopkinton, R.I., said that “We have an important role and need to be involved. We don’t want to see our authority given to some commission.”
State Rep. George Keiser, R-Bismarck, N.D., asked “What is broken? The insurance industry is solvent and regulated..”
But NAIC President and New Hampshire Commissioner Roger Sevigny noted that there is an active call for some kind of change and that “we can’t ignore it. None of us can ignore it.”
However, State Rep. Robert Damron, D-Nicholasville, Ky., said, “It concerns me when the NAIC gives them an ally and breaks the solidarity states have had. If we stay united, we don’t think that Congress will run over us.”
Illinois Director Michael McRaith explained the plan, noting that it was only a proposal and said that it helped address real issues such as working on international insurance issues and creating greater uniformity.
The Commission would receive its authority from Congress, would identify appropriate topics for uniform treatment, develop and implement any standards and only as a last resort would delegate authority to the federal government.
South Carolina Insurance Director Scott Richardson told state legislators that regulators were told “be part of it [reform] or just get out of the way” by federal lawmakers. And NAIC CEO Terri Vaughan said states need to be in Washington and tell their story, which is a good one.
Both sides say that they are committed to working together as Congress gets ready to act on reform. Toward that end State Sen. Delores Kelley, Md., suggested that future discussions also include other state groups such as the National Governors Association, Washington, and the National Conference of State Legislatures, Denver.
At the opening reception, there was no clear opinion on the issue with several attendees saying that they could understand NCOIL’s anger but others saying that NAIC was taking a more pragmatic view. One wag said that NAIC should be given some credit for keeping a secret for two years.