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By: Paul Wenske
Source: www.macon.com
Date: 06/25/03
The National Association of Insurance Commissioners on Tuesday proposed new guidelines for states that would prompt "heightened scrutiny" of the sale of variable annuities. The proposed guidelines also could give state securities commissioners a more prominent enforcement role.
The recommendations emerged from a working committee on the final day of the Kansas City-based organization's national conference in New York. Officials said insurance commissioners nationwide will vote on whether to adopt the recommendations during a teleconference to be scheduled in the next two weeks.
"I'm very pleased that the NAIC has taken these steps," Kansas Insurance Commissioner Sandy Praeger said. Praeger said stronger regulation of variable annuities would protect consumers.
State and federal regulators say thousands of senior citizens in recent years were sold variable annuities that turned out to be unsuitable for their moderate investment and retirement needs.
The Kansas City Star reported that many senior consumers were unknowingly locked into variable annuities that were heavily invested in high-growth stocks. The annuities lost millions of retirement dollars when the stock market took a nosedive.
The National Association for Variable Annuities says that unsuitable sales aren't widespread and that the primary reason for investment losses has been the bear market, which has affected all equity investments. The insurance industry further points out that variable annuities when sold appropriately carry many benefits, including tax-deferred growth.
Still, some state securities commissioners, joined by the National Association of Securities Dealers, have called for stronger regulation. The association this year sanctioned several securities dealers for making sales of variable annuities that were unsuitable to the finances, investment desires and long-term needs of consumers.
Variable annuities sometimes are described as mutual funds wrapped inside an insurance product because they share characteristics of both. Because of their nature, regulation is diverse.
While variable annuities are considered securities under federal law, they are regulated as an insurance product under most state laws, including laws in Kansas and Missouri. The four new national insurance commission recommendations that emerged Tuesday would modify, although not drastically change, state regulation. They would:
The recommendations fall short of proposing that states formally give securities commissioners dual regulation over variable annuity sales. That position was supported by state securities commissioners and by the National Association of Securities Dealers.
Kansas Securities Commissioner David Brant this year urged the Kansas Legislature to give his office dual regulation of variable annuities. The effort failed after strong opposition from the insurance industry.
Insurance industry officials argued that giving state securities commissioners dual regulation authority over variable annuities would only create an extra, unnecessary layer of bureaucracy.
They said consumers already were protected at the state level by insurance commissioners and at the federal level by the National Association of Securities Dealers and the Securities and Exchange Commission.
Praeger said her office already has been cooperating with Brant's office in responding to recent consumer complaints. Brant is leaving office, but Praeger said she has met with his successor, Chris Biggs.
"We already work closely together," Praeger said. "What this will do is set some standards for the states."
Missouri officials said they still were studying the new recommendations and had not yet taken a formal position.
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