DOL — our favorite three-letter, four-letter word, no matter on what side of the fiduciary rule issue we stand.
The Department of Labor is an overreaching, industry-flattening Godzilla for those who don’t like the rule or a compromising fumbler for those who favor it. We can trot out the usual quotes about gauging a rule’s success by the level of mutual dissatisfaction or about the odious sausage that the political/regulatory process usually grinds out. But this rule was a case of misapplied good intentions from the beginning.
I should not be quick to say “was” because the rule is under reconsideration at the moment and who knows what form it will take when it pops back up. We can hope that it comes back in a way that actually provides consumers with transparency rather than tormenting agents and advisors for accepting commissions.
One problem is that the agency is going after the goal of expanding the fiduciary duty through an awkward means. It targets where the money came from and punishes those who take commissions. Let’s not forget that the regulation’s name is the Conflict of Interest Rule.
The thing is, many companies, and even some agents, were grudgingly accepting the legislation, until the inclusion of fixed indexed annuities (FIAs) in the same exemption class as variable annuities (VAs) ensured a bloody fight.
The insurance industry already had won a tough fight to keep FIAs out of the VAs financial regulatory sphere. Courts and Congress backed the industry against the Securities and Exchange Commission’s Rule 151A, which would have placed FIAs under financial regulatory purview.
When the DOL published its final rule, it had made that drastic change without the benefit of public review or comment. That rule and the subsequent class exemption for insurance intermediaries (IMOs) imposed layers of requirements that aren’t similarly expected of registered investment advisors to be considered financial institutions. For example, IMOs are required to have $1.5 billion of fixed annuity premium for each of three consecutive years and keep 1 percent of premium in reserve.
As of early March, the DOL issued a 60-day delay of the rule’s April 10 applicability date. Policy insiders are betting the delay will be extended again to allow rule-making, if the department goes that route.
So, we all have a bit of breathing room on rethinking this rule’s approach.
What’s the goal?
Everybody wants assurance that rogue insurance agents are not preying on elderly clients and placing them in annuities that are not appropriate for them. This is still an issue but certainly less than it used to be — just as we don’t have many classic boiler rooms on the financial side these days.
The suitability standard already covers that issue. Agents are sometimes charged criminally for violating that standard.
Is it not being applied well enough by state commissioners? That is a question worth exploring, but, so far, the National Association of Insurance Commissioners has not been involved in this effort.
Maybe it’s time for an initiative that synchronizes the state-based system with the federal financial one. Perhaps there can be some agreement on goals and requirements.
Because transparency is a goal many agree on, a key requirement would be fee and commission disclosures. They should be accessible and clear to the average consumer.
Other goals could be discussed, and mutually beneficially rules could be developed. Perhaps it is naïve to suggest these agencies could collaborate in this way, but we can dream, right?
Our InFront feature this month focuses on the American Health Care Act (AHCA), the Republican replacement for the Affordable Care Act (ACA). In the article, Managing Editor Susan Rupe tells us the organizations that represent insurance agents like the bill’s direction.
That’s encouraging because the ACA is brutal on agents — nearly no commission for hours of work to enroll clients. Some agents said they ended up with less than minimum wage for their efforts.
The ACA was another instance where the Obama administration and congressional Democrats went out of their way to cut commission-earning agents out of the market. But the part of the rule that punished agents was placing the commission in the 15 to 20 percent administrative portion of the medical loss ratio. So insurers cut commissions. That aspect has not been addressed yet because, apparently, that would require separate legislation.
We can assume this is not the last on health care legislation. Otherwise the MLR and other unpopular parts of the ACA will stand.
As we went to press, the nonpartisan Congressional Budget Office released its score on the AHCA, although President Donald Trump and other Republicans had minimized the CBO’s value. It said 24 million would lose insurance, largely from states’ changing eligibility.
Rates would increase 15 to 20 percent in 2018 and 2019, but drop afterward as younger people enroll in larger numbers.
Younger people would pay less in the new age-rate band, allowing carriers to charge five times more for the oldest bracket than the youngest. The ACA restricts that to 3:1. Older people would see a steep premium increase.
It is still not a given, at press time, that the bill will get through the Senate. So a compromise might be in the making.
Choices would be welcome in the market. The next step will be making sure that agents can exist in the market.