The National Association of Insurance Commissioners (NAIC) has produced the latest draft of its annuity transactions suitability model regulation – a rule that will hopefully enhance the standard of care for sales of the products.
According to NAIC working group chairman and Idaho Department of Insurance director Dean Cameron, the proposal would require insurers and agents to focus on their clients.
“We don’t want agents or insurers to put their interests ahead of the consumer’s,” Cameron explained during a recent meeting attended by NAIC members and other stakeholders. “The consumer’s interest should be first and foremost.”
The proposal would also require an insurance agent selling annuities to act with reasonable diligence, care, skill and prudence. Also under the proposed rule, disclosures about cash and non-cash compensation, as well as material conflicts of interest will be obligatory for agents.
While the annuities proposal adds some good ideas to the current suitability rule, it does not specifically refer to “best interest,” a consumer advocate pointed out.
“It’s unclear exactly how this is an improvement,” said Center for Economic Justice director Birny Birnbaum, who attended the NAIC meeting. “It adds language about the consumer’s interest, but it doesn’t say the consumer’s best interest. Just talking about the consumer’s interest doesn’t add any requirements. It doesn’t elevate the standard of care.”
Cameron retorted, explaining that the term “best interest” does not fix anything.
“The term best interest has been so politicized, and it’s poorly defined,” he remarked. “In the consumer’s interest means you’re focusing on their needs and desires ahead of your own.”
Birnbaum countered by saying that the NAIC working group avoided the issue of whether to apply a new standard to recommendations about annuity products that are already in an investor’s portfolio, on top of new sales.
That’s still a contentious issue,” Cameron admitted. “We’re still grappling with the language.”
InvestmentNews reported that the proposal will be discussed again during NAIC’s upcoming meeting in San Diego this fall.