WASHINGTON – A model regulation on the sale of fixed and variable annuities to seniors has hit turbulent airspace a week from the New York meeting of the National Association of Insurance Commissioners.

The NAIC’s life & annuity committee drafted the current suitability regulation this year, following a fixed annuity suitability model law and regulation that floundered last year. It was stymied by opposition from industry, producer and consumer groups alike. The new effort took the industry by surprise, but North Dakota Insurance Commissioner Jim Poolman voiced frustration at the industry’s resistance and urged carriers to find consensus.

A May draft of the new suitability regulation "echoed NASD conduct rules," said Riva Kinstlick, vice president of government affairs at Prudential Insurance Co. of America, speaking at the Regulatory Affairs Conference here sponsored by the National Association for Variable Annuities. "Many of us looked at it and thought it made sense. We thought it could be a workable model."

Since then, two conference calls have eroded progress in the work and a movement towards consensus. "A work in progress is a little strong. It’s more like a work falling apart," said Lawrence Mirel, commissioner of the District of Columbia Department of Insurance and Securities Regulation.

He described the most recent call as chaotic and said that regulators themselves are having a difficult time agreeing on the matter. " Merwin Stewart [chairman of the committee and the insurance commissioner of Utah] is a very genial fellow, but I don’t think he’s going to be able to find consensus," Miral said.

One issue regulators disagree on is the degree of responsibility of the carrier in the sale, Kinstlick said. The initial draft, which many regulators supported, required insurers to review every application. "In the case of an unaffiliated broker/dealer, the carrier is not in a position to review every application, certainly without tremendous delays. It just doesn’t seem feasible."

For this reason, the proposed regulation was changed, but not all regulators are satisfied with that level of oversight of the sales process. Also, the model regulation still does not define what constitutes suitability and how that is to be determined.

Interestingly enough, the NAIC’s inclusion of variable annuities in the suitability regulation may have stemmed from the industry’s vigorous opposition to proposed state securities regulation of variable annuities, said David Brant, securities commissioner of Kansas and chair of the North American Securities Administrators Association committee leading the effort. "My concern is that the industry’s overreaction to NASAA’s [VA regulation proposal] caused the NAIC to throw variable products back into the suitability regulation."

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