Iowa insurance regulator faults NAIC suitability provision

A state securities and insurance regulator has called for reform of the way states contend with suitability matters for annuities.

A state securities and insurance regulator has called for reform of the way states contend with suitability matters for annuities.
But Jim Mumford, first deputy insurance commissioner and securities administrator in the Iowa Insurance Division in Des Moines, said the National Association of Insurance Commissioners’ annuity suitability model act is not a useful approach.
“It creates too much oversight, and it’s too prescriptive,” he said. “This model is a ‘one method fits all distribution systems’ and that just doesn’t work.”
Mr. Mumford spoke on a panel entitled “Suitability Regulation and Challenges in a Volatile Market” at NAVA’s Government and Regulatory Affairs Conference in Washington.
The model act has been adopted by 41 states.
Mr. Mumford compared the model act to the way the Financial Industry Regulatory Authority Inc. of New York and Washington polices annuity suitability. Although broker-dealers are required to supervise their representatives according to Finra’s rules, insurance sales can go through five or six different channels — not all of which require the same supervisory approach.
However, the chain of responsibility, going from the producer to the principal, is clearly defined in Finra’s model, he added.
Mr. Mumford said that regulators may want to consider Finra’s concepts when they regulate fixed annuities.
“I think what the regulators would like to see is the 2821 concept [a Finra rule that outlines actions a registered rep or a principal must take when recommending a variable annuity]” and apply it to the fixed annuity side, he said. “You want to make sure you have a suitable sale on each. If you’re going to do it on variable, you should have it on fixed too.”
Anticipating that consumers will continue to be interested in fixed annuities, Mr. Mumford suggested that state regulators fix their model law so as to provide guidance to market-conduct examiners — and to do so in a timely manner that takes “months and not years.”
“We need to fix the issues now,” he said. “Fixed sales are going up, I think they’ll stay up.”
NAVA is based in Reston, Va.