Annuity Sales Rules To Be Adopted By Year’s End

As most people nurse their holiday hangover and gear up for the upcoming New Year’s celebration, state insurance regulators are hard at work officially adopting a strengthened annuity sales model law. According to a recent article from InsuranceNewsNet, the Life Insurance and Annuities Committee will hold a conference call to adopt recent revisions of the model law on December 30. 

If all goes according to plan and the committee formally adopts the revamped model, it will then go to the National Association of Insurance Commissioners’ Executive Committee and Plenary for final approval, making the new rules adoptable by states in 2020.

The new regulations commit the agent to establish a consumer profile, documenting things like an individual’s financial situation, insurance needs and financial objectives. While the rule does not establish a fiduciary duty or ban agents from recommending products with a higher compensation structure, the agent must be able to show that such a recommendation is in the consumer’s best interest.

Among the revisions to the rules’ earlier draft are changes to three appendixes: Agent (Producer) Disclosure For Annuities, Customer Refusal to Provide Information and Consumer Decision to Purchase an Annuity Not Based on a Recommendation. The Annuity Suitability Working Group was tasked with the responsibility of crafting the rules’ changes.

The new regulations also require producers to disclose and describe the types of compensation being received, and even the exact amount if requested by the consumer. Consumers must be given a disclosure making them aware of this right to request such information. Additionally, sales contests, bonuses and trips are to be eliminated under the new rules. While changes to these original regulations were not included, a “drafting note” was, clarifying that some incentive programs will be permitted: 

“The intent of this subparagraph (h) is to prohibit sales contests, sales quotas, bonuses and non-cash compensation that promote the sale of a particular product within a limited period of time, but not to prohibit general incentives regarding the sales of a company’s products with no emphasis on any particular product.” 

After formal adoption, it is expected that the new NAIC annuity model will mesh well with the impending best-interest regulation drawn up by the Securities and Exchange Commission, in addition to revised Department of Labor rules.

Written by Rachel Summit

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