Regulating Annuity Sales: The NAIC's Focus for 2026
As we look ahead to 2026, the NAIC Life Insurance and Annuities (A) Committee, led by Iowa and Michigan, is focusing on the regulation of annuity sales. Key areas include guides, suitability, and illustrative practices. A significant development is the formation of the Life Insurance and Annuities Illustrations (A) Working Group, managed by Minnesota. This group aims to enhance transparency in life insurance and annuity illustrations, potentially revising existing NAIC models or crafting new guidance as needed.
The Working Group targets the issue of indexed annuity illustrations that suggest high annual returns. They gather insights from various stakeholders, such as industry associations, actuarial groups, and consumer rights organizations. This initiative indicates a potential review and update of approaches to these illustrations and disclosures.
Central to discussions is the NAIC Annuity Disclosure Model Regulation, known as Model 245. Industry organizations like the American Council of Life Insurers advocate for using Model 245 to promote broader state adoption and coordinated updates. They caution against creating entirely new regulatory frameworks, emphasizing the need to examine product performance without treating illustrations as explicit performance forecasts.
Consumer advocates argue that illustrations often serve as implied performance projections. They propose reforms such as banning future return projections and discontinuing "loan arbitrage" illustrations. These perspectives underscore the need for clarity between product mechanics and performance projections.
Several regulatory paths are considered based on feedback received. Insurers should be prepared for increased scrutiny over Model 245's application, especially regarding indexed annuity illustrations. Distinguishing illustrations from projections is crucial to ensure that they explain product mechanics rather than imply future results. A closer examination of hypothetical performance, especially those reflecting unlikely high returns, is anticipated.
Life and annuity insurers can benefit from proactively evaluating their illustration practices. Conducting thorough reviews of current annuity illustrations and marketing materials can identify potential issues, particularly for products showcasing significant projected returns or relying on backcast data. Insurers are encouraged to reassess internal processes surrounding index design, rate setting, and illustrated returns to align with prospective regulatory trends.
Ongoing discussions in the Working Group may lead to increased standardization of indexed annuity illustrations nationwide. By mapping the current implementation of Model 245 and assessing internal practices against potential changes, insurers can streamline the incorporation of regulatory updates when they occur.