National Association of Insurance Commissioners (NAIC)

The insurance industry requires a high level of regulation to monitor insurer solvency, promote consumer protection and facilitate consistency among states. Because the insurance industry, and therefore the annuity marketplace, is regulated by the states, the NAIC strives to provide standardization through accreditation and model laws.

The National Association of Insurance Commissioners was established in 1871 to allow for the oversight of the insurance industry at the state level. The member-driven organization sets the standards in the insurance industry and supports state insurance commissioners.

The mission of the NAIC is to assist the state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members.

The NAIC represents all 50 states, the District of Columbia and five U.S. territories and achieves its mission through peer reviews, analytics, market data and collaboration among task forces, working groups and state insurance commissioners.

On March 1, 2021, the NAIC released its annual market share data report identifying leading insurance writers in several key lines of business.

The data includes nationwide direct written premiums for the top groups and companies as reported on the annual financial statement of insurers that report to the NAIC.

The list of top 10 U.S. annuity insurers is based on the annuity consideration figures compiled by the NAIC.

To see a full list of NAIC market share data, click here.

The National Association of Insurance Commissioners serves to provide standardization and consistency within the insurance industry while accounting for the differences among the states’ legislatures and regulations.

Because of these differences, state insurance departments require a degree of flexibility so they can operate efficiently while simultaneously adhering to peer-reviewed and accepted best practices.

This is where model laws and accreditation come in.

According to the NAIC, model laws must satisfy a two-pronged test. They must first establish a “minimum national standard.” Then the members must agree to dedicate the resources needed to support the law.

If the measure doesn’t meet these criteria, the working group or task force can submit it as a guideline instead.

Model laws and guidelines, along with accreditation — NAIC certification affirming that a state’s insurance department is in compliance with industry standards — allow the NAIC to assess and verify each state’s ability to oversee the financial status of insurance companies.

Because annuities are insurance products, the National Association of Insurance Commissioners regulates all types of annuities. In addition to the NAIC’s oversight, variable annuities are regulated by the Securities and Exchange Commission and the Financial Industry Regulatory Authority. This is because variable annuities, unlike fixed annuities, are classified as securities.

Protecting annuity and life insurance consumers is a fundamental responsibility of the NAIC. The association developed the Insurance Regulatory Information System (IRIS), a database of insurance companies, to provide state insurance departments with data on each company’s financial strength.

By alerting state commissioners to financially unstable insurers, the NAIC strives to prevent consumers from purchasing annuities from insolvent companies.

The Life Insurance and Annuities (A) Committee is a subgroup of the NAIC that handles issues with life insurance and annuity products. The committee comprises several working groups, including the Annuity Disclosure (A) Working Group, the Annuity Suitability (A) Working Group and the Retirement Security (A) Working Group.

Collectively, these subgroups review and revise annuity model regulations and make recommendations in alignment with the NAIC’s mission and initiatives.

In June 2021, the NAIC created the Index-Linked Variable Annuity (A) Subgroup in response to growing index-linked annuity sales across the country.

The new subgroup is the latest addition to the broader NAIC Life Insurance and Annuities (A) Committee.

According to the NAIC website, the purpose of the new subgroup is to: “Provide recommendations and changes, as appropriate, to nonforfeiture, or interim value requirements related to index-linked variable annuities.”

Nonforfeiture is an insurance policy clause stipulating that a policyholder will receive a full or partial refund of paid premiums if the policy lapses after a specified time due to missed premium payments.

In 2003, the NAIC created the Suitability in Annuity Transactions Model Regulation (Model 275), which established standards and procedures for insurers and brokers recommending annuity products to consumers.

The model regulation requires insurers and brokers to collect information about a consumer’s financial situation to determine if an annuity product is suitable for the potential buyer.

Model 275 is intended to serve as a framework for laws and rules individually adopted by each state.

Insurers who fail to maintain procedures that detect unsuitable recommendations can face sanctions or penalties for noncompliance.

The suitability model regulation also requires brokers and agents to undergo annuity product training.

In 2010, the Suitability in Annuity Transactions Model Regulation was updated to clarify certain previsions and ensure consistency with FINRA standards.

In 2019, the NAIC Annuity Suitability (A) Working Group completed updates to Model 275 which began in November 2017.

In February 2020, the NAIC approved those revisions.

The revision clarifies that all annuity recommendations by agents and insurers must be made in the best interest of the consumer. Agents and carriers cannot place their financial interest ahead of the consumers’ best interest.

The model now requires agents and carriers to act with “reasonable diligence, care and skill” when making recommendations.

Other updates to Model 275 address new training requirements and include enhancements to the model’s supervision system to assist in compliance.

Since the revision rolled out, at least 12 states have adopted rules based off the new NAIC model.

Texas, Virginia and Montana are the latest states to do so. Virginia’s new rule went into effect May 1, 2021. Rules in Texas will take effect Sept. 1, 2021, while Montana’s rule takes effect Oct. 1, 2021.

The process for adoption varies by state. Some states have adopted the model through regulation while others have done so through legislative statute.