FACC opposes the proposed regulation which we believe is unnecessary, redundant, and potentially confusing. While many states – 28 to date – have adopted the NAIC model regulation through rulemaking or legislation, none has seen the need to adopt a regulation similar to the one proposed here. The reason is simple. This regulation is not needed because it attempts to clarify aspects of the regulation that are already clear on their face. In doing so, this proposed regulation only serves to invite confusion and misunderstanding.
South Dakota Division of Insurance
Administrative Rules
124 South Euclid Avenue, 2nd Floor, Pierre, South Dakota 57501
Attn: Lisa Harmon, Insurance Division Counsel, JD, PIR via email Lisa.Harmon@state.sd.us
Re: Amendment of proposed rules §§ 20:06:08:65, 20:06:08:66, and 20:06:08:67
Dear Ms. Harmon,
Thank you for the opportunity to testify today concerning the proposed regulation. I am Kim O’Brien, CEO of the Federation of Americans for Consumer Choice, or FACC. FACC is a trade association consisting of insurance agents, agencies, and marketing organizations who sell guaranteed insurance products including fixed annuities. Our organization was formed to support a level playing field for independent agents and help ensure consumers continue to have choices both as to providers and products to help them achieve their financial needs and goals.
FACC has been deeply involved with development of the latest changes to the NAIC model regulation incorporating best interest obligations and we are pleased that South Dakota recently adopted these updates through passage of legislation mirroring the model regulation. We know those updates were widely supported in South Dakota by industry and other interested parties and we believe they will serve consumers well.
However, we are here today to oppose the proposed regulation which we believe is unnecessary, redundant, and potentially confusing. While many states – 28 to date – have adopted the NAIC model regulation through rulemaking or legislation, none has seen the need to adopt a regulation similar to the one proposed here. The reason is simple. This regulation is not needed because it attempts to clarify aspects of the regulation that are already clear on their face. In doing so, this proposed regulation only serves to invite confusion and misunderstanding.
Having been deeply involved in development of the NAIC model regulation, we believe it is already evident what is meant by the term “authorized” which plainly is referring to products and insurers for which an agent is licensed and appointed to represent and recommend to customers. The context in which this term is used makes this clear and indeed the authors of the model regulation saw no need to define it further. It Is difficult to fathom any other meaning or intent.
We also believe it is already clear that situations identified in this regulation as not being conflicts already would not be material conflicts under any plain reading of the NAIC model regulation. The law makes clear – consistent with the NAIC model regulation – that a conflict only exists if a reasonable person believes the matter in question would influence the impartiality of an agent’s recommendation of an annuity. Notably, compensation is excluded from the definition of material conflict for these purposes.
Given this, it is hard to see how instances identified in this regulation could amount to a material conflict. We submit they would not and thus the regulation is unneeded and potentially confusing to the extent it could suggest otherwise. In particular, ownership interest in an agency or employment of a family member at an agency does not create a material conflict. First – such an interest in and of itself would not influence an agent’s impartiality on what annuity to recommend to customers. Second – even if it did somehow – any interest in this situation is tied to compensation being paid to the agent or agency which is expressly excluded. Thus this regulation is just not needed, and if adopted, would be restating what is already evident from the law itself.
It should be recognized that ownership in an insurer could amount to a material conflict but that would be rare where an insurance agent holds a large enough stake in an insurance company that it would affect the agent’s impartiality in recommending annuities. Regardless, the statute, reflecting the model regulation, is already amply clear on this point and we see little gained by adopting a regulation just to address this relatively narrow situation.
Let me close by thanking South Dakota for joining 27 other states to date in adopting the NAIC model regulation through adoption of legislation earlier this year. We believe consistency among states is critically important and we are grateful that South Dakota has adopted the model regulation. We only ask now that South Dakota refrain from adopting extraneous and therefore potentially confusing regulations that simply are not needed. To the extent any clarification might be desired, we would suggest that be handled through a department bulletin, and it be made clear such supposed clarification is nothing more than a restatement of the law itself.
Thank you for your time today. We also plan to submit a written statement prior to the due date that will complement today’s remarks. Thank you.
Sincerely,
Kim O’Brien, CEO
