A draft of state insurance regulators’ “best interest” standard unveiled over the weekend includes a potentially controversial 3 percent safe harbor that would not require brokers and agents to disclose commissions unless they are being paid more to sell annuities and life products.
The draft raises questions among consumer groups concerned that the early proposal does not go far enough to alert consumers about costs and conflicts of interest. “We encourage questions; they’re part of the process,” Dean Cameron, chairman of the National Association of Insurance Commissioners Annuity Suitability Working Group, told Financial Advisor Magazine.
“We had to start some place,” said Cameron of the draft that was released at the NAIC’s national fall conference in Hawaii over the weekend. “What we’ve attempted to do is provide some clarity and improve or raise the bar as to the requirements that a producer and carrier will have to meet. We also attempted to put in place a safe harbor so that if a producer meets a list of requirements, he would be deemed compliant.”
The NAIC will accept comments until January 22, at which time it will hold another hearing, said Cameron, who is director of the Idaho Department of Insurance. The best interest standard is part of an overhaul of the NAIC’s suitability model, which was approved in 2010 and has been adopted by 39 states and the District of Columbia.
Birny Birnbaum, the consumer representative who spoke at the NAIC meeting, said he is still evaluating the draft.
“It’s unclear what they were intending, so during the meeting our questions were really focused on what their intent is,” said Birnbaum, executive director of the Center for Economic Justice who was also representing a host of consumer groups.
“Our first question was given this new standard, do you expect there to be changes in the types of products that are sold and if so, how are you going to measure it?” Birnbaum said.
Conflict of interest disclosure and the commission safe haven threshold also continue to grab consumer group’s attention.
“It appears that the sole mechanism of tracking conflicts of interest is through disclosure, so we are asking regulators if that’s their intent, to limit this to disclosure,” Birnbaum said.
Birnbaum also asked about the 3 percent threshold in the model above which brokers and agents have to make disclosures. “The question is how did you come up with the 3 percent [threshold]?”