News emerged late in the day on Thursday that National Association of Insurance Commissioners (NAIC) has granted final approval to its revised model regulation that sets the conflict of interest rules for insurance producers to follow when recommending annuity products to their clients.
The development comes 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 can now 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, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight.
Supporters of the NAIC best interest framework include the Insured Retirement Institute (IRI), which says the revised annuity transaction model and is consistent with the U.S. Securities and Exchange Commission’s Regulation Best Interest (Reg BI), which financial services companies must comply with by June 30.
Similar to Reg BI, the NAIC model regulation says that insurance producers shall act in the best interest of the consumer under the circumstances known at the time a recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.
“The NAIC model regulation is a significant enhancement to the standard that applies when producers recommend annuities to their clients,” says Wayne Chopus, IRI president and CEO. “We urge states to move quickly to adopt this new regulation.”
According to Chopus, the final NAIC rule set also includes industry-recommended language to provide a safe harbor for all insurance producers who are subject to, and actually comply with, comparable or greater conflict of interest prevention standards that already exist in certain states.