This week, South Carolina became the 24th U.S. state to adopt enhanced consumer protections that align with the standards finalized in early 2020 by the National Association of Insurance Commissioners in its Suitability in Annuity Transactions Model Regulation.
The NAIC is the United States’ standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, Washington, D.C., and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews and coordinate their regulatory oversight.
Under the leadership of Acting Director Michael Wise, the South Carolina Department of Insurance has finalized and adopted a new rule that codifies the NAIC standards in the state. These standards align with those set out by the Securities and Exchange Commission’s Regulation Best Interest. In practice, this means that the annuity transactions standards require best-interest service without mandating that all advisers to such transactions act in a fiduciary capacity.
Among the supporters of the NAIC’s framework and its increasingly widespread adoption is the American Council of Life Insurers. ACLI President and CEO Susan Neely and National Association of Insurance and Financial Advisors South Carolina President Johnny Craven issued a joint statement on Monday commending the South Carolina regulators.
“Unlike a fiduciary-only approach, these measures ensure that all savers, particularly financially vulnerable middle-income Americans, can access information about different choices for long-term security throughout retirement,” Neely and Craven write. “The U.S. Congress reaffirmed the importance of lifetime income when it passed legislation in 2019 that made it easier for employers to include annuities in workplace retirement plans. These protections safeguard consumers while also ensuring that middle- and working-class families retain access to annuities.”
Neely says the ACLI hopes that other states continue the momentum and adopt these “sensible protections,” so that more consumers can benefit from a best-interest standard of care while shopping for annuities.
One matter that could potentially complicate the widening implementation and enforcement of the NAIC’s suitability framework is the fact that the Biden administration could choose to modify, update or even rescind Reg BI, though sources say this is far from a given. While such a move would not entirely derail what the states have done, given that the safe harbors often also cite the Investment Advisers Act or the Department of Labor fiduciary standards, the elimination of Reg BI could cause ambiguity in the different state-based conflict of interest rules.