Virginia is the latest state to adopt an updated annuity suitability rule but might be among the first ones to take effect unless the state adds a six-month grace period.
Without a change in the rule, producers would have to comply with the new standard as of the implementation date of May 1. The Insured Retirement Institute sent a comment on the rule asking for the change. The original model regulation calls for a six-month grace period to train producers and build systems to comply with the standard.
The rule otherwise is consistent with the National Association of Insurance Commissioners’ model annuity suitability, which itself aligns with the Securities and Exchange Commission’s Regulation Best Interest standard, said Jason Berkowitz, IRI’s chief legal and regulatory affairs officer.
According to Berkowitz, as of May 1, producers will be required to:
• Act in the client’s best interest, to not put the producer’s own interests ahead of clients.
• Exercise appropriate levels of care, diligence and skill in making sure that producers understand understanding what their client’s personal situation is, what their needs and objectives are.
• Understand the products that are available to the producer and how they can be used to help their clients achieve clients’ goals.
• By fully trained on general annuity principles, as well as these specifics of the individual and evidence to recommend.
• Provide appropriate disclosures about their compensation.
• Take appropriate steps to mitigate or eliminate any material conflicts of interest.
• Keep appropriate records of the transaction and the recommendation and the dialogue that they have had with with the client.
Insurance companies will be required to supervise the conduct of the producer to ensure that they’re following those rules.
‘A Little Distinction’
So far, the states that have adopted annuity standards along the NAIC’s model are:
• Arizona: in effect
• Arkansas: June 29
• Delaware: Aug. 1
• Idaho: July 1
• Iowa: in effect
• Michigan: June 29
• Ohio: Aug. 14
• Rhode Island: April 1
Each of those states had a six-month grace period, except for Idaho, which went through the legislature, Berkowitz said. Idaho’s rule became official last week, and because of the long adoption process, the grace period was shortened to about four months.
Another quirk with Idaho’s rule is a longer recordkeeping requirement.
“It’s a five year period, but it starts when the contract is at its end of life,” Berkowitz said. “So, if you buy an annuity, and if you have it for 30 years, the insurance company has to keep the records on the 30 years plus five,” Berkowitz said. “As long as the companies understand that and make appropriate accommodations, it’s not a big deal. But those are the kinds of things where we’ll see a little distinction between one state and another.”
IRI flagged another concern, echoing one expressed by the American Council of Life Insurers, Berkowitz said.
The Virginia rule does not explicitly eliminate the private right to sue, as the NAIC model does. But the assumption is that the private right does not exist under the rule.
“While it would be nice for them to make that point clear and have that consistency with the [NAIC] model, my understanding and my sense is that if they don’t do that, it doesn’t really change the outcome,” Berkowitz said.
IRI has been generally pleased with how the SEC and the Department of Labor have supported rules that have been put into place during the Trump administration.
“The policymakers that are in place, or will be in place soon, at the SEC and at the Department of Labor have really been at least saying the right things in terms of wanting to make sure that the rules that are in place now are fully enforced, appropriately enforced to adequately protect consumers, that they’re going to look and see how effective those rules are,” Berkowitz said.
He added that if those policymakers did see a need to revisit the rules, he did not expect to see an overhaul.
“I don’t necessarily think that there are folks coming into those agencies at the federal level with a preconceived notion that they must throw out the current framework and replace it with a full-fledged fiduciary framework that I think that they recognize wouldn’t necessarily move the needle.”
But that does not mean that he and others won’t be wary of another push for a more fiduciary-type standard.
“That is something that is it would not surprise me,” Berkowitz said, “to see a renewed push by the fiduciary advocates.”
Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at firstname.lastname@example.org.
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