The NAIC’s recently-revised Suitability in Annuity Transactions Model Regulation (2010 Suitability Model) may have the unintended consequence of reducing the number of broker-dealers who are willing to sell an insurer’s variable annuities.

The 2010 Suitability Model imposes on insurance producers two new training requirements: (i) product-specific training and (ii) a one-time four credit annuity training course approved by the state department of insurance. These training requirements may vary as implemented by different states. The training requirements apply to all types of annuities, including variable annuities sold by registered representatives, who are also subject to additional training requirements imposed by FINRA.  

An insurer may contract with a third-party (including a broker-dealer) to perform training-related functions, although the insurer is responsible for verifying that its insurance producers have completed all the training required under the 2010 Suitability Model. A broker-dealer may receive requests from one or more insurers to assist in this regard by tracking its registered representatives’ completion of such training.  

Broker-dealers may find such tracking to be burdensome, particularly where a large number of different annuity products, states, and insurers are involved. Accordingly, some broker-dealers have considered reducing the number of affiliated insurers (and annuity products). For example, one large independent broker-dealer that currently works with twenty insurers has indicated that it may reduce that number to six.

Insurers offering variable annuities may be required to accept a reduced selling group, while some, in the alternative, could themselves implement a training tracking system for the registered representatives. This alternative would, however, obviously be more difficult for insurers distributing variable annuities through independent broker-dealers. At the other end of the spectrum, a few larger insurers with captive sales forces are already set to track completion of training requirements.