California annuity legislation must be passed by 2025 to avoid ‘dual regulation’ – Insurance News

California Senate Bill 263, which would make California the 41st state to enact rules to sell prime-rate annuities, has stalled amid pushback from consumer groups. It’s currently on file in the Assembly Appropriations Committee, and five consumer associations want it to stay that way unless revisions are made.

These groups are concerned that the bill excludes cash and non-cash compensation as a conflict of interest that advisers and brokers would have to disclose to their clients.

The Dodd-Frank Act cited

However, the commission invoked Section 989J of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, which gives the state authority to regulate the sale of fixed and fixed indexed annuities under two specific circumstances.

The first is when the state in which the contract is issued or in which the provider is based has “adopted requirements that substantially meet or exceed the minimum requirements established by the 2010 version of the National Association of Insurance Commissioners model.”

The second is when that state “adopts rules that substantially meet or exceed the minimum requirements of any subsequent modifications to the model regulation within five years of adoption by the NAIC.” This second interpretation is the focus of the commission.

“NAIC [National Association of Insurance Commissioners] Model #275 was updated again in 2020… Therefore, by 2025, California must adopt updates to California law that contain consumer protections that are at least as stringent as NAIC Model #275 in order to avoid dual regulation of fixed annuities by the California Department of Insurance and the federal government,” the Assembly Appropriations Committee said.

Lawmakers have from January to August 2024 to pass either SB 263 or other legislation that addresses the noncompliance with Model #275. The bill’s author, Sen. Bill Dodd, D-Napa, told InsuranceNewsNet that he has every intention of passing SB 263 next year.

“SB 263 advances important new consumer protections that currently do not exist in California. It is my intention and expectation to pass the bill once the legislature reconvenes,” he said.

Amendments to SB 263 sought

No groups or lawmakers are outright opposed to the bill to regulate annuity sales. Instead, five consumer groups took the position of “opposition unless amended.”

These five groups include the Center for Economic Justice, the Consumer Federation of America, the Consumer Federation of California, the Center for Life Insurance Consumer Protection, and United Policymakers.

“Almost all conflicts of interest between agents and consumers arise from monetary or non-monetary compensation,” the Life Insurance Consumer Protection Center said in a statement.

“Monetary and non-monetary compensation can influence the recommendations an agent makes and must be disclosed to users as a conflict of interest.”

For industry trade groups, the main concern was that the original version of the bill would have subjected each seller to “absolutely indefinite and unlimited obligations” by making their primary fiduciary duty to customers rather than insurance companies.

“We felt that this would create an environment where there was a completely undefined fiduciary relationship as a matter of law created in every single relationship that an insurance agent or broker would have in selling these annuity products,” Stephen Young, general counsel for the Independents said. insurance agents and brokers of California.

“We are concerned about this because concepts of fiduciary duty do not fit easily into agency law in the way insurance is sold.”

However, this concern was addressed in an amendment in June. As a result, groups including the California Association of Life and Health Insurance Companies, the American Council of Life Insurance Companies, the Federation of Americans for Consumer Choice, Finseca, IIABCal, the Insured Retirement Institute, the National Fixed Annuity Association and others dropped their opposition .

“I don’t know if we’re really eager for new laws and regulations, but at least the biggest concerns we had with the bill when it was introduced have been addressed,” Young said.

SB 263 has the support of Insurance Commissioner Ricardo Lara of the California Department of Insurance, which sponsored the bill, and the California Commission on Aging.

CDI noted that the bill is needed to “avoid federal preemption as well as create additional consumer protections to ensure that California insurance companies and licensed producers who sell annuities follow the highest standards of conduct.” .

Discussions are underway

While DoD did not comment on what kind of revisions will be made to SB 263 next year, a representative from his office said discussions will be held with relevant groups in the interim until the start of the new legislative year.

“Insurance Commissioner Lara and I will continue to work with all stakeholders, including my colleagues in the Legislature, consumer advocates and the industry, to refine and develop the bill,” Dodd said.

Although the Life Insurance Consumer Advocacy Center argued that “a coalition of consumer groups has been excluded from discussion” about the SB 263 amendments, it also called for future collaboration to get the bill right.

“A true stakeholder process must include not only the insurance industry and CDIs, but also consumer groups so that meaningful reforms can be passed to protect California consumers,” it said.

Rayne Morgan is the content marketing manager at PolicyAdvisor.com and a freelance journalist and copywriter.

© All contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the express written consent of InsuranceNewsNet.com.

Leave a Comment

Your email address will not be published. Required fields are marked *