(insurancenewsnet) State regulators crafting new annuity sales rules hit a snag Tuesday and called on the lawyers to make sure state supervision of indexed annuities is preserved.
The Annuity Suitability Working Group is holding two-hour conference calls in a bid to finally complete the model law before the National Association of Insurance Commissioners' fall meeting in December.
Regulators were going over a draft section by section when they reached a drafting note indicating that a new annuity sales model law will replace the existing regulation where it is mentioned in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
However, what seems like a minor change could cause major problems, said Wesley Bissett, senior counsel for government affairs for the Independent Insurance Agents and Brokers of America.
Specifically, Section 989J of Dodd-Frank grants states an exemption from securities regulation of indexed annuities as long as they adopt the Suitability in Annuity Transactions Model Regulation (#275). If the NAIC replaces #275, states that don't adopt the new regulation might also lose the ability to regulate indexed annuities, Bissett explained.
"That is a pretty significant outcome to foist upon a state," he added. "You’d be putting a certain universe of states in a very different position if you deem it to be a successor regulation."
The panel discussed whether simply removing the drafting note would solve the issue. But it is unclear whether the language in Dodd-Frank would automatically apply to a new annuity regulation or not.
Making it clear that any new annuity sales model is "not a successor regulation" would likely solve the problem, Bissett said. "There are a variety of ways that you could ultimately fix the problem," he added.
“I think we’re going to want to ask NAIC legal for their thoughts on this," said Jillian Froment, chair of the working group and director of the Ohio Department of Insurance.
The working group has three more two-hour calls planned: Oct. 15 and 29 and Nov. 5. The rest of Tuesday's uneventful call mostly covered definitions of terms.
But the group is still lacking a strong consensus on whether to extend the annuity sales rule to in-force policies, a point that has been debated several times.
