Meeting in New York in August, Ohio insurance director Jillian Froment succinctly boiled down the difficulty in developing an annuity sales standard: “What best interest means to us as a working group does not mean that every state around the table will support that.”
Nor will every trade association, industry executive or consumer representative be satisfied, she could have added.
Yet the National Association of Insurance Commissioners plows ahead with revisions to the Suitability in Annuity Transactions model. 2020 promises to be an eventful year as the NAIC, as well as various states, advances tightened annuity sales standards.
The fear that many agents and insurers have of a patchwork of differing standards from state to state seems likely to become a reality.
A Model Attempt
The NAIC Annuity Suitability Working Group tentatively adopted an annuity sales model on Nov. 5 that establishes a best-interest standard. Producers must meet obligations of care, disclosure, conflict of interest and documentation under the model.
The effort has made significant strides since it started two years ago, and many trade associations flipped to support a best-interest standard during that time. But a few thorny issues remain. Regulators were continuing to meet after this issue went to press on these issues, which include:
» In-force policies. New York has passed its own stiffened annuity sales rule, which applies to in-force policies. Working group members have resisted this stipulation, which is vehemently opposed by industry.
» The Harkin Amendment. The amendment was added by then-Sen. Tom Harkin of Iowa to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It grants states an exemption allowing them to regulate indexed annuities as insurance products as long as they adopt the NAIC annuity regulation Model 275.
The new annuity sales model includes a drafting note indicating that it will replace the existing regulation where it is mentioned in Dodd-Frank. If the NAIC replaces Model 275, states that don’t adopt the new regulation might lose the ability to regulate indexed annuities.
NAIC attorneys confirmed the Dodd-Frank language is a real issue that must be addressed
» Best-interest obligation. Although this definition is settled, the language is pleasing neither side. The Independent Insurance Agents and Brokers of America wants to strike “act in the best interest of the consumer” from the definition.
Meanwhile, the Center for Economic Justice wants to tighten the best-interest definition to this sentence: “A best interest standard should be defined as a recommendation for a product or products that best meet the consumer’s needs without consideration of the producer’s interest.”
The working group passed the annuity sales model changes to its parent Life Insurance and Annuities (A) Committee. The A Committee was expected to adopt the rule after this issue went to press. The NAIC Executive Committee and Plenary will then vote to adopt the model before it can be sent to the states.
Regulators say the model could be approved early in 2020 if all goes well.
There is a legitimate question of whether that will be too late. Several states, ranging from New York to Massachusetts, are pushing forward with their own annuity sales rules.
New York: Finalized its rules in 2018, and all annuities sales were covered as of Aug. 1, 2019. All life insurance sales are covered Feb. 1, 2020. New York’s language unambiguously states that only the interests of the consumer can be considered in a sale, and in-force policies are covered by the rules.
Massachusetts: The state filed a proposed rule last month that would impose a fiduciary conduct standard for broker-dealers, agents, investment advisers and investment adviser representatives providing financial advice to clients in the state.
Other states have toyed with other ideas with various degrees of success. New York remains the lone state to establish a comprehensive annuity sales rule.
SEC On Track To Implement Reg BI In June
The Securities and Exchange Commission worked steadily through 2019 to advance its package of rules known as Regulation Best Interest, set to take effect June 30.
Adopted in June 2019, Reg BI includes these main requirements:
Disclosure obligation: Broker-dealers must disclose material facts about the relationship and recommendations of the products and services they provide.
Care obligation: A broker-dealer must exercise reasonable diligence, care and skill when making a recommendation to a retail customer. The broker-dealer must understand potential risks, rewards and costs associated with the recommendation.
Conflict-of-interest obligation: The broker-dealer must establish, maintain and enforce written policies and procedures reasonably designed to identify and — at a minimum — disclose or eliminate conflicts of interest.
The SEC rules were reportedly designed to harmonize with the impending Department of Labor retooled fiduciary rule. The Trump administration has indicated it wants a rule that gives the industry the leeway to do business with retirement account dollars. A similar best-interest standard is expected when those rules are made public.
As this issue went to press, DOL officials were vowing to release the retooled fiduciary rule by the end of 2019.
Could 2020 Bring A Break On Drug Prices?
Americans could be getting closer to a break on prescription drug prices as the House of Representatives was expected to vote on a drug pricing bill backed by Speaker Nancy Pelosi, D-Calif.
The bill would allow the secretary of health and human services to negotiate lower prices for up to 250 drugs per year, with the lower prices applied to people with private insurance and to people with Medicare.
The Congressional Budget Office in October released a preliminary analysis of the first section of the bill, which allows for negotiation, finding the measure would save Medicare $345 billion.
President Donald Trump opposes the bill. Although he has pledged to bring down drug prices, his plan for doing so includes making it easier for Americans to import drugs from Canada.
Meanwhile, in the Senate, Majority Leader Mitch McConnell, R-Ky., and Sen. Chuck Grassley, R-Iowa, are increasingly at odds over a Trump-backed bipartisan measure to lower drug prices.
McConnell opposes the bill while Grassley is trying to increase pressure on McConnell to support it. Many Republican senators object to a key provision in the bill that would require drug companies to pay money back to Medicare if their prices rise faster than the rate of inflation. They argue that constitutes a “price control” that violates traditional GOP free-market thinking.
Another key component of the bill, one that’s less controversial, would cap seniors’ out-of-pocket costs for Medicare drugs.
With 2020 being an election year, leaders on both sides want to see action taken on a prescription drug bill before members of Congress become preoccupied with campaigning.
An End To Surprise Bills?
One of the few healthcare issues on which Democrats and Republicans agree is the issue of surprise billing.
House and Senate leaders have been trying to reach a deal on legislation to protect consumers from surprise medical bills.
Trump also wants to see action on the issue. The legislation would protect patients from getting hit with massive bills when they go to the emergency room and one of the doctors caring for them happens to be outside their insurance network.
Backers of the deal hoped to include it in a government funding deal that faced a Dec. 20 deadline. But as of press time, Congressional leadership had not yet signed on to the deal.
Doctors and hospitals lobbied hard against the issue, worried about cuts to their payments.
‘Medicare for All’ Still Under Discussion
Whether private health insurance fades away in favor of a Medicare for All plan will depend on what the voters do in the November 2020 presidential election.
Any congressional action to put a government-run health care plan in place won’t happen as long as Trump is president, as he has pledged to veto any such legislation that would come across his desk.
As the Democratic presidential campaign winds along, expect Medicare for All to continue to be promoted by some candidates, while others favor a hybrid approach or a Medicare buy-in option.