California Annuity Sales Rule Bill Faces Consumer Group Opposition

Oregon became the 38th state adopter on June 1, when Gov. Tina Kotek, a Democrat, signed SB 536, a suitability update bill, according to the ACLI.

New York state has taken a different approach and has implemented its own standards for life insurance and fixed annuity sales.

The Section 989J Problem

California legislative analysts have highlighted one of the concerns driving swift state adoption of the NAIC suitability update: a belief that Section 989J of the Dodd-Frank Wall Street Reform and Consumer Protection Act may give the SEC authority to share oversight of fixed annuity sales with state insurance regulators if states fail to adopt the NAIC’s update by 2025.

California SB 263

The California Department of Insurance developed California’s suitability update bill, SB 263, with support from the California Department of Aging.

Sen. Bill Dodd, D-Napa, California, introduced the bill in March.

When Dodd introduced the bill, many life and annuity groups — including the American Council of Life Insurers, the Association of California Life and Health Insurance Companies, the Federation of Americans for Consumer Choice, Finseca, the Independent Insurance Agents & Brokers of California, the National Association for Fixed Annuities and the National Association of Insurance Financial Advisors – California — strongly opposed the bill, based on the argument that it was too different from the NAIC model.

Groups that say they represent consumers, including the Center for Economic Justice, the Consumer Federation of America, the Consumer Federation of California, the Life Insurance Consumer Advocacy Center and United Policyholders, also opposed the bill, based on arguments that the bill was too close to the NAIC model update and too closely based on Reg BI.

Lawmakers have made several sets of revisions to the original draft of SB 263.

In April, when the California Senate Insurance Committee reviewed the bill at a hearing, speakers such as Matthew Powers, a vice president with the Association of California Life and Health Insurance Companies, and Shari McHugh, a lobbyist for NAIFA-California, said they liked the version of the bill under consideration at that point and wanted to see the bill move forward.

Consumer group speakers, such as Brian Brosnahan of the Life Insurance Consumer Advocacy Center, a lawyer who represents policyholders in disputes involving life insurers, blasted the bill.

Brosnahan criticized the bill for exempting cash-value life insurance from the scope of the Reg BI rules.

He also blasted the bill for requiring annuity sellers to disclose “material conflicts of interest,” but using what he contended is a misleading definition of “material conflict of interest.”

The NAIC definition “would exclude cash and non-cash compensation,” he said. “This would exempt 99% of the conflicts of interest from the scope of the bill.”

Annuity sellers would have to disclose whether they owned part of a life insurer issuing an annuity, but they would not have to disclose whether they would receive a $40,000 commission for selling the annuity, Brosnahan said.

The California State Capitol in Sacramento, California. (Photo: Sundry Photography/Adobe Stock)