At the time of this writing, NAFA is tracking 106 legislative and/or regulatory proposals which affect the fixed annuity industry. A round up of the bills and rules passed during the 2015 legislative session appeared in last month’s Annuity Outlook magazine. NAFA follows numerous industry-related topics, including all of the NAIC model rules and laws relating to the sale and distribution of fixed annuities as well as other germane issues, such as continuing education and producer licensing, elder financial abuse and exploitation, taxation, unclaimed life insurance and annuity benefits, state-based retirement plans, etc. NAFA provides detailed analysis of these issues to NAFA members and engages with elected officials and industry regulators to provide input, guidance, and, hopefully, influence the outcome of these proposed rules and regulations. The following summarizes some of the activity undertaken during the current 2016 calendar year, either by state legislatures or state regulatory agencies.
Interstate Insurance Product Regulation Compact
As previously reported, the State of Connecticut introduced Connecticut House Bill 5343, which would have Connecticut join the Interstate Insurance Product Regulation Compact (IIPRC). (There is also an identical Governor’s Bill, No. 5051.) The Connecticut Joint Insurance and Real Estate Committee held a public hearing on the proposal on March 1, 2016. In addition to Connecticut, New York has a bill pending to join the IIPRC: New York Assembly Bill 1262. Also, South Carolina has introduced SC House Bill 4662, which would reenact the interstate insurance product regulation compact and related provisions, enacted by Act 339 of 2008, which expired on June 1, 2014; passage of this legislation would make these reenacted provisions retroactive to this expiration date.
A supermajority of states are already members of the IIPRC, with only the following states/jurisdictions not currently a member of the Compact: California (which recently enacted legislation to have the California Insurance Commissioner study whether the State should join the Compact), Delaware, District of Columbia, Florida, North Dakota, and South Dakota. According to the Interstate Insurance Product Regulation Commission, “Since meeting its operational threshold in May 2006, the IIPRC now has 44 Member States representing over 70% of the premium volume nationwide. The Management Committee Members currently include the six largest Compacting States according to premium volume: Texas, Pennsylvania, New Jersey, Illinois, Ohio, and Michigan; four states with at least 2% of the premium volume: Massachusetts, Indiana, Maryland, and Wisconsin; and one additional state from each of four regional zones, Tennessee, Oregon, Nebraska, and New Hampshire. Additional Members of the Compact include: Alabama, Alaska, Arizona, Arkansas, Colorado, Georgia, Hawaii, Idaho, Iowa, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, Oklahoma, Oregon, Puerto Rico, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Washington, West Virginia, and Wyoming.” [Kansas, Mississippi, North Carolina, and Virginia are also Compact member states.] (Please see www.iiprc.org).
Suitability in Annuity Transactions
California has introduced legislation, which would amend the State’s suitability in annuity transactions law, Section 10509.913 of the California Insurance Code. California Senate Bill 924 would add another piece of information to its current list of information that insurers and insurance producers are required to ascertain in order to determine that the annuity transaction is suitable: whether the consumer intends to apply for government benefits. California, which adopted the most current NAIC Suitability in Annuity Transactions Model Regulation, MDL 275 (Revised 2010) in January 2012, already requires one additional piece of information in its suitability analysis than does the NAIC model rule’s 12-point list – whether the consumer has a reverse mortgage. An inquiry as to whether the prospective buyer intends to apply for government benefits would bring California to a 14-point inquiry, making its requirements for suitability compliance greater than any other state.The NAIC Unclaimed Life Insurance Benefits (A) Working Group has been developing a new NAIC model law to address the issue of locating and paying, when possible, beneficiaries’ proceeds for unclaimed insurance policies, annuity contracts and retained asset accounts.
Use of Senior Specific Certifications and Professional Designations in the Sale of Annuities
The Tennessee Department of Commerce and Insurance issued a notice of its intent to adopt new standards to protect consumers from misleading and fraudulent marketing practices with respect to the use of senior-specific certifications and professional designations in the solicitation, sale or purchase of, or advice made in connection with, a life insurance or annuity product, adopting NAIC Model Rule 278: Use of Senior Specific Certifications and Professional Designations in the Sale of Life Insurance and Annuities, adopted by the NAIC in 2008. The Department held a public hearing on the proposal on February 17, 2016.
Unclaimed Life Insurance and Annuity Benefits
The NAIC Unclaimed Life Insurance Benefits (A) Working Group has been developing a new NAIC model law to address the issue of locating and paying, when possible, beneficiaries’ proceeds for unclaimed insurance policies, annuity contracts and retained asset accounts. At the NAIC 2015 Spring National Meeting, the Working Group appointed a new subgroup to begin developing the model law; the work on the model law continues and will need to be considered by the full Working Group, the A Committee, and the Executive Committee, and would ultimately need approval by the full NAIC in plenary session. In the meantime, a number of states are currently considering legislation to enact an Unclaimed Life Insurance Benefits Act, including: Florida (which also has a bill to create a Division of Unclaimed Property within the Florida Department of Financial Services); Illinois; Massachusetts; Missouri; Oklahoma; and Pennsylvania.
Generally, these bills would require insurers to perform a comparison of their insureds’ in-force life insurance policies, annuity contracts, and retained asset accounts against the U.S. Social Security Administration’s Death Master File (DMF) or other comparable databases; engage in outreach efforts to locate the beneficiaries of such policies and contracts; and report to state regulators at the completion of these efforts. There are significant issues yet to be resolved in creating a uniform standard in dealing with unclaimed life insurance benefits, such as how frequently the insurers are required to conduct the DMF comparison (for the state bills referenced above, all but Florida require a semi-annual review; Florida would require the comparison on an annual basis), whether the requirements should apply equally to both large and small insurers, and whether the requirements of the Act or Model Law should be retroactively applied or, in the alternative, only be applied to policies and contracts issued on or after the Act’s effective date.