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Annuity Sales Model Moves Forward


Last Sunday, the Life Insurance and Annuities Committee met at the NAIC Fall Meeting in Austin, Texas. The agenda: strengthened suitability in annuity transactions model law. 

According to a recent article from InsuranceNewsNet, the Annuity Suitability Working Group worked on the annuity sales model for a year and a half before voting to finalize it on November 5. At that point, the committee instructed the group to work out the kinks and report back. Now, the committee has adopted the text of the annuity sales model, which adds a best-interest standard to all annuity sales.

Industry representatives, trade associations and consumer groups all made final points at the meeting. After the committee adopts the annuity sales model, it will go to the NAIC Executive Committee and Plenary for final approval. Industry experts think that that could happen early next year. Once it is an official NAIC model law, it’ll be sent to the states for adoption.

The best-interest standard that is presented in the model presents these four obligations: care, disclosure, conflict of interest and documentation. In terms of the agent’s perspective, two changes could result. 

The first change will involve additional work and documentation to establish the consumer’s profile. Things like consumer’s financial situation, insurance needs and financial objectives will need to be documented, for example.

While the rule does not establish a fiduciary duty or ban agents from recommending products with a higher compensation, it does require the agent be able to show that such a recommendation is in the consumer’s best interest.

Producers will also be required to disclose and describe the types of compensation they are receiving (when requested) and the amount of compensation received. A disclosure alerting them to the right to request the amount of compensation also must be provided. 

The second change discontinues sales contests, bonuses and trips that have previously been offered as sales incentives. The rule requires insurers “to identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific annuities within a limited period of time.”

Chief legal and regulatory affairs officer for the Insured Retirement Institute, Jason Berkowitz, said his membership is happy with the model.

“We think that they’ve produced a very workable regulation,” he said. “It is a significant enhancement from our perspective to the standard that applies when producers recommend annuities to their clients.” 

Berkowitz believes that many states will be eager to adopt the annuity model, and others will follow suit eventually.

“We’ll be pushing for this to be adopted across the country,” he said. “I think you will see an early rush of states that will want to get out on this quickly.”

“We expect that the best interest standard for annuity recommendations will align well with the SEC’s Regulation Best Interest,” said Bruce Ferguson, ACLI senior vice president for state relations. “Together, these two initiatives will significantly strengthen protections for consumers seeking guaranteed lifetime income in retirement through annuities.”

Written by Rachel Summit

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