28 ID Trends NAILBA
The regulatory environment
Change is in the air
The COVID-19 pandemic caused all of us to pivot quickly and create resilient models to continue our businesses . While we have had to re-invent our structures and improve our technology , the onslaught of additional regulations has not slowed down and has added to the challenges we face . In the past 2 years numerous new regulations have been implemented affecting all of us .
Suitability or Fiduciary
The standard of care has been discussed for years with regulators bouncing between suitability and fiduciary . The National Association of Insurance Commissioners ( NAIC ) established model regulation for annuity suitability in 2003 and revised the model in 2010 and then again in 2020 to a Best Interest Model . Best Interest is just short of fiduciary but offers more protection for consumers than suitability . While this affects primarily annuities , it is only a matter of time until it is expanded to indexed and variable life insurance .
Regulation 187 New York has expanded the concept to life insurance with their own rule , Regulation 187 , that goes beyond the NAIC model and requires that producers and insurers act in the consumer ’ s best interest in recommending and servicing life and annuity policies in New York . This includes disclosure of product features , benefits and costs , and documentation of the basis for any recommendations .
Reg BI Variable insurance products moved beyond suitability with the Security and Exchange Commission ’ s ( SEC ) Regulation Best Interest ( Reg BI ) that went into effect June of 2020 . All security recommendations must be in the client ’ s best interest and have several disclosures supplied prior to or at the time of a recommendation .
PTE 2020-02
The Department of Labor couldn ’ t stay on the sidelines and issued Prohibited Transaction Exception ( PTE ) 2020-02 , regulating advice to any retirement account . This is not as stringent as the 2016 rule that was successfully appealed , but it does require that any retirement recommendation be in the best interest of the client .
Insurance Data Security Model Law 668
Privacy is an area that we are all aware of and we have had HIPAA since 1996 , but now we have Insurance Data Security Model Law 668 adopted in 21 states as of June . This model law establishes data security obligations for insurance carriers which in turn will trickle down to BGAs and producers . To be ahead of the regulation game , we should all make sure we have strong cybersecurity measures in place .
Z . Jane Riley is Chief Compliance Officer for The Leaders Group , Inc . and TLG Advisors , Inc . a Securities and Exchange Commission registered broker dealer and investment advisory firm . She has been with The Leaders Group since 1998 . jane @ leadersgroup . net
Proposal being considered
THE NAIC Life Actuarial Task Force ( LATF ) is considering amending AGA 49-A ( again ) regarding the use of illustrations for indexed universal life ( IUL ). Concerns have been raised by state insurance regulators about the use of IUL illustrations with volatility-controlled indexes that allow for crediting fixed bonuses under the policies . The comment period has closed but expect to see another proposal from NAIC in the coming months .
The pandemic has not slowed down the efforts of lawmakers and regulators but thanks to the resiliency we have developed , we have adapted to the changing regulatory environment .