From the standpoint of good governance and promoting sound regulation that is business friendly, consumer protective, and consistent with a competitive marketplace, we believe South Dakota would be best served to not deviate from the NAIC model requirements. We hope you – as Governor – will appreciate and agree that it is a strong statement in favor of state insurance regulation that so many states have already banded together to adopt best interest standards befitting the insurance industry and thereby have helped preserve state regulation against federal encroachment.
The Honorable Governor Kristi Noem
South Dakota Office of the Governor
500 East Capitol Avenue
Pierre, SD 57501
Re: House Bill 1091 – Request for Veto
Dear Governor Noem:
The Federation of Americans for Consumer Choice (FACC) is a trade association consisting of insurance agents, agencies, and marketing organizations who sell guaranteed life & health insurance products including fixed annuities.
First and foremost, we commend South Dakota for being among the first states to adopt the updated National Association of Insurance Commissioners (“NAIC”) model requirements relating to annuity sales which incorporate best interest standards. South Dakota adopted those updated NAIC model requirements through legislation enacted and signed into law in February 2022. We are writing today to ask that you veto HB 1091 which purports to clarify certain elements of these South Dakota annuity laws but which we believe are confusing and ultimately at odds with more conservative principles favoring state insurance regulation.
The updated NAIC Model was an important milestone in development of a national standard of care in the recommendation of annuity products and was enacted in part to forestall unnecessary and unwarranted federal encroachment into insurance regulation which has been historically and effectively led by state insurance commissioners. While the updated NAIC Model unto itself was intended by state regulators to be an advancement in an evolving financial services marketplace, it was adopted against a backdrop in which federal agencies – in particular the Department of Labor during the Obama administration and continuing through today – have been seeking to assert jurisdiction over much of the insurance industry.
It is our view that HB 1091 is an unhelpful deviation from the NAIC Model considering this larger context. While it purports to clarify certain elements of South Dakota’s current legislation, in fact it essentially re-states what is already the accepted interpretation of the NAIC Model and thus is redundant, unnecessary and confusing. These kinds of deviations invite novel interpretations and can call into question the intent of model requirements. While FACC believes every state should be free to do as it sees fit, the point of model regulation is to bring about consistency on those issues where there is broad agreement among states. To date thirty states have agreed and adopted the NAIC Model as written and more states are in queue.
Consistency is especially important here where there has been an effort to fend off federal regulators who want to impose an onerous regime on life insurance agents selling products that historically have been outside federal regulation. While HB 1091 may be viewed as innocuous in some ways – and while it may have some support from pockets of agent groups – in the larger context it will create uncertainties about the NAIC Model and potentially cause unintended consequences that undermine the NAIC Model as the alternative to unwelcome federal rules and requirements. In many ways this legislation is a solution in search of a problem unnecessarily calling into question common practices. Just one example is its supposed clarification that agent ownership of an agency is not a conflict of interest when such ownership would not be considered a conflict of interest under any reasonable interpretation of the law itself.
It should be noted that the updated NAIC Model was developed under the leadership of the Iowa Insurance Commissioner who worked hard with other state regulators, industry representatives, and consumer advocates to address these issues in a thoughtful way and that the NAIC has an apparatus for addressing any open issues through an established FAQ process. It is our view that such clarifications should be addressed through FAQs or bulletins or other non-legislative devices available to state insurance departments so that the NAIC Model itself remains intact as a uniform set of laws consistent across the country. While we can understand and agree there are situations where too much authority can be vested in the bureaucracy, and we are told that is one reason South Dakota prefers legislation over agency interpretations, we do not believe those concerns are operative here where the law is already clear and there is true need for coordination among state regulators overseeing a national industry.
In short, from the standpoint of good governance and promoting sound regulation that is business friendly, consumer protective, and consistent with a competitive marketplace, we believe South Dakota would be best served to not deviate from the NAIC model requirements. We hope you – as Governor – will appreciate and agree that it is a strong statement in favor of state insurance regulation that so many states have already banded together to adopt best interest standards befitting the insurance industry and thereby have helped preserve state regulation against federal encroachment.
Let us close by once again thanking South Dakota for helping lead the way in 2022 in adopting the updated NAIC Model governing annuity sales. We only ask now that you veto HB 1091 – which while perhaps well intentioned – unnecessarily deviates from national model requirements that we think best serve insurance industry and citizens of South Dakota.
Kim O’Brien, CEO