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The National Association of Insurance Commissioners (NAIC) is a member-supported regulatory agency created to monitor the insurance industry. The NAIC provides consumer protection and education to promote a competitive, transparent marketplace that offers reliable and affordable insurance products and annuities.
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.
What Does the NAIC Do?
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.
- Protect the public interest;
- Promote competitive markets;
- Facilitate the fair and equitable treatment of insurance consumers;
- Promote the reliability, solvency and financial solidity of insurance institutions; and
- Support and improve state regulation of insurance.
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.
The NAIC’s Top 10 Annuity Issuers
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.
- Jackson National
- Lincoln National
- American International Group
- Apollo Global Management Corp
- New York Life
- Voya Financial Group
- Equitable Holdings
- Massachusetts Mutual Life
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.
Model Laws & Accreditation
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.
How the NAIC Protects Annuity Owners
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.
NAIC Committees and Working Groups
Life Insurance and Annuities (A) Committee
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.
Index-Linked Variable Annuity (A) Subgroup
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.
The Suitability in Annuity Transactions Model Regulation
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.
- The consumer would benefit from certain features of the annuity.
- The overall annuity — as well as its underlying subaccounts — are suitable for the consumer.
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.
New Updates to Suitability Model Regulation
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.
- Descriptions of the producer-consumer relationship and the producer’s role in the transaction.
- The sources and types of compensation a producer receives from an annuity sale.
- Affirmative statements about the annuity products a producer is licensed and authorized to sell.
- Whether the producer is authorized, contracted or able to sell insurance products for more than one insurer.
- A consumer’s right to request other information about cash compensation.
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.
16 Cited Research Articles
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- Ashton, B. and Pennartz, S. (2021, July 6). State Fiduciary and Best Interest Developments: Texas, Virginia and Montana. Retrieved from https://www.jdsupra.com/legalnews/state-fiduciary-and-best-interest-7981609/
- Hilton, J. (2021, June 17). NAIC Forms Work Group To Better Regulate Index-Linked Annuities. Retrieved from https://insurancenewsnet.com/innarticle/naic-to-form-work-group-to-oversee-index-linked-annuities
- National Association of Insurance Commissioners. (2021, June 4). Annuity Suitability & Best Interest Standard. Retrieved from https://content.naic.org/cipr_topics/topic_annuity_suitability_best_interest_standard.htm
- Bigayer, J. and Black, A. Y. (2021, May 6). States Spring Into Action With Best Interest Rules for Annuities. Retrieved from https://www.jdsupra.com/legalnews/states-spring-into-action-with-best-6410591/
- National Association of Insurance Commissioners. (2021, March 29). NAIC 2020 Market Share Data. Retrieved from https://content.naic.org/sites/default/files/web_market_share_life_fraternal.pdf
- National Association of Insurance Commissioners. (2021, March 1). NAIC Releases 2020 Market Share Data. Retrieved from https://content.naic.org/article/news_release_naic_releases_2020_market_share_data.htm
- National Association of Insurance Commissioners. (2020, February 13). NAIC Takes Action to Protect Annuity Consumers. Retrieved from https://content.naic.org/article/news_release_naic_takes_action_protect_annuity_consumers.htm
- National Association of Insurance Commissioners. (2020, January 13). NAIC Model Laws. Retrieved from https://content.naic.org/cipr_topics/topic_naic_model_laws.htm
- National Association of Insurance Commissioners. (2020, January 8). Accreditation. Retrieved from https://content.naic.org/cipr_topics/topic_accreditation.htm
- National Association of Insurance Commissioners. (2020). Suitability in Annuity Transactions Model Regulation. Retrieved from https://content.naic.org/sites/default/files/inline-files/MDL-275.pdf
- U.S. Securities and Exchange Commission. (2018, August 7). Letter from the Committee of Annuity Insurers. Retrieved from https://www.sec.gov/comments/s7-07-18/s70718-4186622-172758.pdf
- National Association of Insurance Commissioners. (2018). State Ahead Strategic Plan 2018 209 2020. Retrieved from https://content.naic.org/sites/default/files/inline-files/state_ahead_strategic_plan.pdf
- U.S. Securities and Exchange Commission. (2011, April 6). Annuities. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/glossary/annuities
- National Association of Insurance Commissioners. (n.d.). Index-Linked Variable Annuity (A) Subgroup. Retrieved from https://content.naic.org/cmte_a_ilva.htm
- National Association of Insurance Commissioners. (n.d.). Life Insurance and Annuities (A) Committee. Retrieved from https://content.naic.org/cmte_a.htm
- National Association of Insurance Commissioners. (n.d.). Protecting the Future Infographic. Retrieved from https://www.naic.org/documents/index_protectingthefuture_infographic.pdf