Annuity FYI Blog

The National Association of Insurance Regulators issued new suitability standards this summer that they hope investment advisers will follow.  According to Investment News’ “IRI to launch ‘painless’ annuity training platform” by Mark Schoeff Jr., the annuity sales training will be uniform across the board of investment advisers because one website will handle everything.  While only two states have plans in place to implement the regulations, there are 29 other states committed to beginning the suitability requirement process.  Iowa will be the first state to require the suitability regulations be followed, beginning January 1.  Their investment advisers will be able to use this new website system for their training because it will be up and running on November 22 of this year.

The Insured Retirement Institute worked with RegEd, a compliance company, to get the training program up and running.  Advisers will receive specific training related to the suitability of annuity products to meet the new suitability standard.  The training will include a range of annuities from a 401k annuity to various other types of fixed and variable annuities.  These suitability standards were put in place to protect worried consumers who hear the small percentage of negative stories about annuities from the media.  While the majority of annuity products are not too complex or expensive to begin with, this across the board training is meant to eliminate any abusive practices by advisers.  There are incentives in place to encourage the 19 states who haven’t yet implemented the regulations to do so.

NAIC 2010 puts much more stringent requirements on insurers to ensure that annuities sold are meeting suitability standards.  According to Insurance News Net’s “Prepare for Tougher Annuity Standards,” because state insurance departments won their battle with the SEC over regulating annuities they will now have to comply with stricter rules.  Producers of fixed annuity products will have similar suitability standards to those already in place for variable annuity producers.  Insurers are fully responsible for following these standards and ensuring that the marketing done by their producers follows standards as well.  NAIC 2010, or the NAIC Suitability in Annuity Transactions Model Regulation, has a number of checks and balances to oversee annuities.

First of all, annuity producers have to look at 12 different pieces of information from customers to determine suitability and follow the new suitability requirements.  The product disclosure requirements mean that consumers must be able to understand all facets of information relating to their annuity, including death benefits, all riders attached, and annuity rates.  There will be an independent suitability review done by someone similar to an insurance underwriter to make sure that customers qualify for the annuity, even if they already have the money to purchase their product.  The record keeping and supervision of the record process will entail much more than in the past with states requiring documents to be kept and reviewed anywhere from four to ten years.  All of these new NAIC 2010 provisions are looking out for the best interest of consumers.

The National Association of Insurance Commissioners just had a fall meeting to discuss the changing regulation needs regarding annuities, according to “Taking on the next steps in annuity regulation” by Brian Atchison of Investment News.  Consistency across the U.S. seems to be the biggest problem relating to annuity regulation.  State and federal regulators are in charge of overseeing variable annuity sales transactions, but they have differences in their policies.  Fixed and indexed annuities are only regulated by state agencies who follow the guidelines of the NAIC.  This is all changing with new regulations.

The NAIC’s Suitability in Annuity Transactions Model Regulation has been adopted by 41 states.  It basically says that any annuity being sold has be suitable to the purchasers’ needs and will be subject to regulators if it is not.  Unfortunately all states have not adopted the regulations and those that have are interpreting the rule in their own ways, so nothing is standard across the U.S.  The Insurance Marketplace Standards Association and Finra have proposed that the NAIC give more guidance, direction and greater enforcement to the 41 states following their guidelines.  With that proposal, the NAIC has decided not to change their current guidelines, but to focus on meshing them with Finra Rule 2821.  As IMSA, the NAIC, and Finra are able to work together to regulate annuities, it can only help consumers’ interests.

The National Association of Insurance Commissioners is still working on a new model act to ensure the suitability of annuities even though some people were questioning the need for such an act.  This information comes from insurancenewsnet‘s article “Plan for New Annuity Model Continues at NAIC.”  The model currently being used is from 2006 and called Suitability in Annuity Transactions Model Regulation.  According to Sean Dilweg, the Wisconsin Insurance Commissioner and chairman of the Suitability in Annuity Transactions Model Regulation, a new plan is necessary to keep up with recent changes in the marketplace and new regulations.

Insurance companies would be held more accountable for ensuring the suitability of their annuity products whereas they currently can pass that responsibility off to either third parties or the broker-dealers.  The new model is applied to all consumers, regardless of their age.  Fixed annuity rates and policies must be proven to be the best option for each individual customer as do the variable annuity policies.  The new model is similar to practices already put in place by the federal government for broker-dealers and other advisers regarding variable annuities.

Insurance regulators in the state of New York are holding four hearings to determine if they need to add more regulations for life insurance and annuity contract sales, as written by Jonathan D. Epstein of the Buffalo News.  The article, “Insurance Department mulls more oversight”, says that the hearings will start in Buffalo on August 6 and follow in Albany, Long Island and New York City through the middle of September.  The issue of “suitablity”, or the proper match of product and consumer, is the insurance regulators’ main focus.  They want to make sure that companies are not improperly selling life insurance and/or annuities to people that the products do not suit.

The New York State Insurance Department seeks individuals and organizations alike to come to these hearings and voice comments or concerns.  Whether in the field of academics, aiding senior citizens, or average Joe citizen, they want to collect information from you.  They are also accepting comments by mail, email and the state’s website.

NAIC, the National Association of Insurance Commissioners, has what they call their “model regulation”.  Although 30 states follow this model, New York is not one of them.  Currently there is no law in New York that bans selling life insurance or annuity contracts that are not in the consumer’s best interest.  The insurance regulators will decide after these hearings whether the state will adopt the NAIC guidelines or the Financial Industry Regulatory Authority rules governing variable annuities.  Another pending decision is whether or not the new policies will be a blanket rule for all life insurance and annuity sales.  There’s a lot of discussion to be had.