The National Association of Insurance Commissioners indicated it would not impose a fiduciary standard on insurers and insurance producers as part of its overhaul of annuity sales rules, according to draft language of the group's model regulation released Tuesday.
The NAIC, a body that helps set U.S. insurance standards, has been
working to establish more stringent annuity rules in the wake of greater attention to stricter investment advice standards created by the Department of Labor's fiduciary rule, which went into effect last June but
was struck down in court. The NAIC rule would cover non-securities annuities, such as fixed and indexed annuities.
The group said in its most recent draft that the required duties of insurers and producers would not "cause [them] to be treated as a fiduciary, or impose a duty of loyalty on [them]," under any regulation or federal, state or common law.
That language is likely unwelcome news for investor advocates — who have been pushing for a strong sales standard approaching that of the DOL fiduciary rule — and cheered by the insurance industry.
According to the draft, which incorporated feedback from a comment period that concluded in April, the fiduciary language was suggested by an industry coalition and is subject to further discussion by the NAIC.
Annuity sales are currently governed by a "suitability" standard, which dictates that a product must be suitable for a particular consumer. To have mandated a fiduciary standard would have been a "large jump" from where things currently stand, said William Mandia, partner at Stradley Ronon Stevens & Young.
At the same time, the NAIC draft states that an annuity recommendation must be made without placing the insurer's or producer's financial interest ahead of the consumer's. It also lists additional requirements around disclosures.
The draft release comes on the heels of New York
issuing a final regulation to set tougher standards around annuity as well as life insurance sales, which observers say is stronger — both in the scope of products covered and in the standard of care — than the NAIC proposal. The Securities and Exchange Commission also is
working on a rule for more stringent standards around investment recommendations made by brokers.
The NAIC working group putting the annuity proposal together plans to finish it by the end of the year, according to an NAIC official speaking on background. It would then go to the group's Life Insurance Committee for consideration, and then to the full NAIC membership, according to the individual.
States, which set and enforce insurance rules, could choose to incorporate the NAIC model regulation, amend it or not adopt any parts of it.
Brokers selling annuities in states adopting the NAIC rule would comply with both the state law and the
Financial Industry Regulatory Authority Inc., the body regulating brokerage firms and their representatives, said Jamie Hopkins, an insurance expert at The American College of Financial Services.
There are rarely conflicts between the state and Finra rules, but they can be different in some cases, he said.
Mr. Hopkins doesn't believe the NAIC's most recent additions would have a meaningful impact on the conduct of insurance producers.
"It is really more of a statement that the NAIC commissioners and members are still not on board with broad-based fiduciary requirements or too many restrictions on compensation," Mr. Hopkins said.
