Navigating Murky Waters

by Lee Stiegemeier, Copywriter

In 2010, the insurance industry celebrated the defeat of SEC Rule 151A, declaring fixed indexed annuities (FIAs) to be insurance products rather than securities. The Harkin Amendment, as the legislation became known, shields FIAs from SEC regulation and oversight and provides encouragement to states for adopting the NAIC model suitability regulation for annuities. The premise was to ensure that annuities would still be subject to suitability standards to protect the American consumer.

The Harkin Amendment provides a "safe harbor" for an annuity assuming it meets the following criteria.  

1. It does not use a separate account. 2. It meets the standard non-forfeiture requirements. 3. It must be issued either: in a state that adopts the model suitability law by June 16, 2013; by a company domiciled in a state that adopts the model suitability law by June 16, 2013; or by a company that adopts and implements practices on a nationwide basis that meets or exceeds the model suitability law requirements.

A quick translation of this summary means that there is no state mandate for adopting the suitability law. However, if states don’t choose to take action, carriers must do so in order to take advantage of the safe harbor.

The NAIC 2010 Suitability in Annuity Transactions Model Regulation that the Harkin Amendment refers to has important implications for carriers and producers alike. It establishes a regulatory framework that holds insurers responsible for ensuring that annuity transactions are suitable. It also requires annuity producers to receive continuing education on the fundamentals and material features of annuities in general, as well as product specific training.

As 2011 unfolded, we saw Iowa set a precedent and become the first state to adopt the NAIC suitability regulations and implement provisions accordingly. We look forward to watching additional states follow Iowa’s lead. Even if this doesn’t happen as swiftly and comprehensively as we’d like, producers should be prepared for carriers to step up and issue requirements for the four-hour continuing education provision of the suitability regulation, in addition to mandatory product-specific training to protect the annuity safe harbor.

FIA products escaped securities regulation, at least for the time being, thanks to all the work done by insurance companies, IMOs, members of Congress and a host of others who worked tirelessly for nearly two years to protect the integrity of these products for consumers. Now, we must all do our part. Keep your eyes open for state- and carrier-specific regulations affecting you, or call your Annuity Sales Consultant for the most up-to-date industry information.

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