Best Interest Standards Comprehensively Protect Consumers

Nov 15, 2019

Life insurers strongly support protections serving the best interests of customers, which can be meaningfully safeguarded with disclosure about services and material conflicts of interest. This approach provides an effective means to shield consumers and facilitate informed purchase decisions.

The Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) and Form CRS provide this degree of meaningful consumer protection. The National Association of Insurance Commissioners (NAIC) has worked closely with the SEC to develop parallel protections for annuities, which guarantee lifetime income. With this, consumers will have uniform state and federal standards.

In addition to the significant protections of Reg BI and Form CRS, consumers enjoy more safeguards when purchasing life insurance products. A broad array of regulation benefitting consumers is administered by state insurance departments, the SEC, the Department of Labor, the Financial Industry Regulatory Authority (FINRA), and various state securities departments.

Existing comprehensive regulations govern important aspects of the customer relationship. They include suitability standards, disclosure, advertising, supervision, maintenance of customer account assets, data collection, training, and compensation. In general, the federal securities laws and FINRA rules govern individual variable insurance contracts, and state insurance laws and regulations apply to fixed insurance products.

These laws and regulations include:

  • FINRA Rule 2330 governing suitability and supervision in the sale of variable annuities;
  • FINRA Rule 2320 governing non-cash compensation for variable products and mutual funds;
  • NAIC’s Annuity Disclosure Model Regulation, which includes a recently enhanced plain-English “Buyer’s Guide;”
  • NAIC’s Model Replacements Regulation, and state regulations including New York Regulation 60, which governs life insurance and annuity replacements;
  • NAIC’s Unfair Trade Practices Act and the prohibition on unfair financial planning practices;
  • State insurance consulting laws regulating the simultaneous receipt of commissions and fees for insurance consulting services.

In addition, insurance products are unique in today’s financial marketplace with free-look provisions allowing consumers to evaluate purchases for up to 10 days after the sale. They can change their mind for any reason, including cost factors, and receive a refund.

In summary, a profound network of protection exists for insurance consumers in addressing their financial needs and making informed purchase decisions.

Carl Wilkerson

Carl B. Wilkerson was Vice President and Chief Counsel, Securities at the American Council of Life Insurers until March 2020. He principally addressed financial service institution regulation that had an impact on life insurance companies. Prior to joining ACLI in 1981, he was a staff attorney at the Securities and Exchange Commission.