Mississippi Is Latest State to Embrace NAIC Annuity Sales Rules

Supporters of the NAIC annuity transaction suitability model say a fiduciary-only approach to annuity purchase advice would limit consumer choice—a claim its opponents dispute.

Back in February 2020, the National Association of Insurance Commissioners (NAIC) granted final approval to its revised model regulation that sets conflict-of-interest rules for insurance producers to follow when recommending annuity products to their clients.

The development came after years of work by the NAIC on the development of updated “best interest service” rules applying to insurance agents and representatives selling annuity products. With the NAIC’s approval, state insurance regulators became free to adopt the model regulation into their own insurance regulations.

By way of background, 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.

Fast-forward to this month, and Mississippi has just become the 18th state to adopt the enhanced protections for annuity consumers, which closely align with the Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI). With the move, Mississippi joins a growing list of states that have done the same, including Arizona, Arkansas, Idaho, Iowa and Ohio. Notably, some other states have taken steps to create their own local frameworks that are more restrictive than the NAIC model, including the more progressive state of New York, although its approach is the subject of ongoing litigation.

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 (DOL) fiduciary standards, the elimination of Reg BI could cause ambiguity in the different state-based conflict of interest rules.

Regarding Mississippi’s decision, American Council of Life Insurers (ACLI) President and CEO Susan Neely and George Pickett, a member of the National Association of Insurance and Financial Advisors (NAIFA) Government Relations Committee, issued the following joint statement, praising the development: “Retirement savers seeking lifetime income from annuities should work with financial professionals who act in consumers’ best interest. The rule adopted by the Mississippi Insurance Department makes certain that they will. Mississippi is the 18th state to adopt enhanced protections for annuity consumers. … 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 in retirement. … We urge more states to follow Mississippi’s example and implement this sensible consumer protection. Then, more consumers working to protect their family’s financial future would benefit from a best interest standard of care, no matter where they live.”