With the signature of Gov. Doug Ducey, the state government in Arizona has finalized and adopted a law to establish a best interest standard for annuity transactions.
Arizona is now the second state in the nation to adopt the model best interest framework finalized in November by the National Association of Insurance Commissioners (NAIC). It follows in the footsteps of Iowa, which in May became the first state to do so. The law has an effective date of December 31, 2020.
The NAIC is the U.S. 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.
The NAIC model suitability framework closely aligns with the U.S. Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI), which takes effect on June 30. Included in the Arizona law is language to establish a safe harbor for all insurance producers conducting annuity transactions in the state who are subject to, and comply with, equivalent or greater federal conflict of interest mitigation standards such as Regulation Best Interest or the Investment Advisers Act.
Financial services providers broadly support the NAIC framework and have encouraged more states to adopt the model regulation. As explained by American Council of Life Insurers (ACLI) President and CEO Susan Neely, the appeal of the NAIC model is its coordination with the sweeping Reg BI.
“Arizona’s new law builds on the growing momentum to enhance protections for consumers seeking lifetime income through annuities,” Neely says. “The law gives retirement savers confidence that the financial guidance they receive will be in their best interest. It ensures that Arizonans will get the help they need to find an annuity that is right for them. The Arizona law also matches up with the SEC’s Regulation Best Interest, providing Arizonans with important protections at the state and federal levels.”