The Life Insurance and Annuities Committee of the National Association of Insurance Commissioners (NAIC) voted on Monday to advance its revised Suitability in Annuity Transactions Model Regulation for final consideration.
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.
The full NAIC still must approve the annuity transaction suitability regulation before individual states may consider it for adoption, but Monday’s committee vote was significant in that the updated model now formally includes a safe harbor for all insurance producers who are subject to, and actually comply with, the Securities and Exchange Commission’s (SEC) Regulation Best Interest or the fiduciary standard under the Investment Advisers Act.
Jason Berkowitz, the Insured Retirement Institute’s chief legal and regulatory affairs officer, says he is confident the full NAIC executive committee and plenary will vote to adopt the revised suitability model regulation early in 2020.
“This revised model regulation will advance consumer protection with a best interest standard for insurance producers,” Berkowitz says, noting that the Insured Retirement Institute advocated for the inclusion of the Regulation Best Interest safe harbor. “Throughout this process, insurance regulators at NAIC working group and committee level have worked in an open, transparent manner to craft a model that is generally consistent with Regulation Best Interest and the right approach to provide strong consumer protection.”
Important provisions of the Regulation Best Interest, or “Reg BI,” take effect on July 1, 2020. Finalized in 2019, Regulation Best Interest has both fans and detractors. Supporters say Reg BI represents a workable and sufficiently flexible framework for tamping down on conflicts of interest through greater disclosure requirements. On the other hand, pointing to this disclosure-based approach and the fact that brokers and advisers will continue to be subject to different standards of conduct, Reg BI’s opponents say the ruleset will likely fall far short of its stated goals.
“We are optimistic that the NAIC will approve this important revised model regulation,” Berkowitz says. “If approved at the February retreat, [we are] prepared to work immediately with states to quickly implement this important new consumer protection regulation.”