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Officials at the U.S. Treasury Department have developed a long list of proposals for overhauling U.S. insurance regulation in a new report on regulation of the insurance and asset management sectors.
The department prepared the report in response to an executive order, issued by President Donald Trump in February, that sets out the administration’s core principles for changing financial services regulation. In the order, Trump calls, for example, for regulators to empower consumers to build wealth and save for retirement, and to make regulation more efficient and more effective.
In one section of the new report, the Treasury Department expresses its support for delaying enforcement of the U.S. Department of Labor’s fiduciary rule, and for looking at the impact of the rule across markets.
(Related: Treasury Backs DOL Fiduciary Rule Delay)
The department also includes 70 pages of thoughts on how to improve insurance regulation. The final recommendation is for the Treasury Department to organize an inter-agency task force that would be responsible for doing something about long-term care finance.
The task force would “develop policies to complement reforms at the state level relating to the regulation of long-term care insurance,” the department says. “The task force’s work should be coordinated with the ongoing work of state insurance regulators and the [National Association of Insurance Commissioners (NAIC)].”
The department does not list the National Association of Insurance Financial Advisors as a participant in the talks that helped produce the report, but it does list the NAIC, the American Council of Life Insurers, the Insured Retirement Institute, AARP, the Consumer Federation of America, and many life insurance companies and large insurance brokers.
Dirk Kempthorne, president of the ACLI, said in a statement that the ACLI is still studying the report, but that it likes the department’s emphasis on making regulation and processes more efficient, and on the Treasury Department’s recognition that the life insurance industry and its products play an important role in providing retirement security.
The report creates a framework for discussion. It does not formally introduce any proposals for changing government regulations or procedures.
Treasury Secretary Steven Mnuchin included a mild statement in the press release announcing the report.
“The regulatory framework for both the asset management and insurance industries can be significantly improved,” Mnuchin says in the statement.
Even the insurance industry overview at the beginning of the insurance section, and a guide to federal agencies that have something to do with insurance regulation, might be of interest to agents and brokers.
Treasury Secretary Steven Mnuchin (Photo: Treasury)
If the Treasury Department even makes a serious start at trying to make some of these recommendations reality, it could, if nothing else, generate many ideas for breakout sessions at agent and broker meetings.
Here’s a list of 10 of the proposals that seem as if they could have the most impact on life and annuity specialists. (The page numbers refer to the report’s own page numbers, rather than PDF page numbers.)
1. Transparency (page 106)
Here, in a section on the Federal Insurance Office, an agency that’s supposed to help the Treasury Department understand the insurance sector, and represent the United States in international insurance negotiations, the department says the FIO should be more transparent, and consult more with stakeholders, both through public and private forums. A Democratic state insurance regulator complained at a House hearing on Tuesday that most state insurance regulators have had a hard time getting any information from the FIO in recent years about international insurance agreement negotiations.
2. Coordination with state insurance regulators (page 97)
The department states here, in a section on solvency and systemic risk regulation that, “The states are the primary regulators of the insurance industry in the United States, and insurance regulation at the federal level should be conducted in coordination with the states.”
3. Dissident states (page 121)
There may be limits on the department’s interest in recognizing state regulators’ independence. In a section on speeding up the process for getting products to market, and state insurance regulators’ Interstate Insurance Product Regulation Compact, the department notes that California, Florida and New York state represent 20.5% of U.S. insurance premiums and have not yet joined the compact. The department says it “encourages the NAIC to bring in states that have not yet joined the compact.” The department is also recommending that “the states take steps to mitigate inconsistent or conflicting state laws, regulations and practices applicable to approval of insurance products.”
4. Unity (page 102)
In a section on the International Association of Insurance Supervisors, which has contributed to efforts to develop tough new international life insurance capital standards, which are not in effect in the United States, the department says interested parties in the United States have to get on the same page. “It is critical that the U.S. members of the IAIS present a consistent, unified approach to [international capital standards] development,” the department says.
The U.S. IAIS members should persuade the IAIS to push back the delivery of a new capital standards update, to allow for the development of an alternative proposal that will be implementable in all major insurance markets, the department says.
5. Activities-based regulation (page 98)
Big insurers in the United States have opposed the current U.S. approach to designating and regulating whole entities as “systemically important financial institutions” that could cause problems for the financial system.
The United States now believes that international bodies and other bodies should focus on activities-based oversight, or scrutiny of activities that threaten the financial system, rather than on entity-based systemic risk regulation, the department says.
6. Cyber Threats (118)
The department says it wants to do more to share information about threats and best practices with small entities, and to have the FIO develop a working group that will focus on cyber security at small and regional insurers.
7. National Association of Registered Agents and Brokers (page 126)
The first NARAB statute, which was part of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, was supposed to make it easier for producers licensed in one state to do business in other states.
Former President Barack Obama signed a sequel, the “NARAB II” Act, into law in January 2015.
The board that’s supposed to implement NARAB II Act, and ease the remaining barriers that keep agents and brokers from doing business in multiple states, does not have a quorum, because it has too few confirmed members, the department says.
The department says it will get the FIO to recommend NARAB II board nominees to the president quickly, and get the names to the Senate for confirmation soon.
8. A Variable Annuity Summary Prospectus (page 111)
The U.S. Securities and Exchange Commission has had creating a variable annuity summary prospectus on its to-do list for years, but simply has not created a summary rule, the department says.
The SEC should make developing a rule that allows the use of a variable annuity summary prospectus and a streamlined variable annuity prospectus update process a priority, the department says.
The SEC should also talk to state insurance regulators before adopting any international accounting standards that might cause problems for annuity issuers, the department says.
9. Annuity Grades for Employer Plan Sponsors (page 143)
The Treasury department suggests that one barrier to employers building annuitization options into retirement plans may be a fear that the employer could face fiduciary risk if the annuity provider failed.
The department says it wants to work with the U.S. Department of Labor to come up with a way to certify one or more independent financial strength assessment fiduciaries, so an employer could rely on that fiduciary’s assessments of financial strength when choosing annuitization option providers.
10. Long-Term Care Insurance Task Force (page 143)
The Treasury Department says the new long-term care task force should include representatives from the U.S. Department of Health and Human Services, the Treasury Department’s own Internal Revenue Service unit, and the Office of Management and Budget.
The task force and state entities “should collaborate on addressing the challenges of financing [long-term care],” the department says.
“The challenges of financing LTC require a coordinated response from the federal government because they are of national interest,” the department says.
The department mentions several proposals for improving the LTC finance system, including letting retirement plan participants use some of their savings to pay for long-term care insurance, creating LTC savings accounts similar to health savings accounts, and improving LTCI purchase tax incentives.
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