WASHINGTON–The Independent Insurance Agents and Brokers ofAmerica has lashed out against a Securities and Exchange Commissionproposal to regulate equity indexed annuities and securities as“unwarranted and counterproductive.”

The IIABA also said in a comment it filed with the SEC that inproposing federal oversight of EIAs the agency did not keep in mindthe potential problems it would create for licensed insuranceagents, who would be forced to associate with broker-dealers andget a securities license in order to keep selling them.

Charles Symington, IIABA senior vice president of governmentaffairs, said “as with nearly every type of financial servicesproduct, there have been examples of troubling sales practices,”which was the justification the SEC and FINRA [Financial IndustryRegulatory Authority] gave for seeking to impose federal oversighton sale of EIAs.

“These problematic activities, however, are not the norm, andappropriate and meaningful actions are being taken by stateinsurance regulators to prevent misleading and fraudulentactivities and punish those who engage in them,” Mr. Symingtonsaid.

He also argued that “among the financial services sectors,insurance regulators have developed a well-earned and unparalleledreputation in the consumer protection arena, and there is no reasonto believe that federal oversight will be more effective orresponsive than state oversight or a system of dual (andpotentially conflicting) regulation.”

“Federal regulation, in this and other contexts, does notnecessarily produce better regulation,” said the IIABA. Theorganization is also asking that the comment period on the proposalbe extended so congressional pressure can be brought to bearagainst the proposal.

The issue arose from the decision of the SEC and the FederalIndustry Regulatory Authority to establish federal oversight overEIAs.

The proposed rule would do so by excluding indexed annuitiesfrom the current definition of “annuity contracts” under theSecurities Act of 1933 and analogize indexed annuities to variableannuities.

The IIABA says it is commenting on the issue because a number ofits members, besides selling property-casualty products, also offerlife and health insurance products, including EIAs, to theircustomers.

The IIABA letter was signed by Mr. Symington. It says the SECproposal “ignores the fact that indexed annuities are a form offixed annuity that ensures a minimum guaranteed rate ofreturn.”

Mr. Symington said in the letter that the proposed rule “notonly fails to provide clear benefits to consumers, but theunnecessary imposition of federal oversight will actually reducecompetition and responsiveness to consumer needs while imposingsignificant costs on the private sector.”

He also argues that the proposal “does not adequately considerthe effects of this proposal upon state-licensed insuranceproducers who currently engage in the sale of indexedannuities.”

Specifically, he said, changing the definition of “annuity” toinclude EIAs would force insurance agents to become licensed asregistered representatives, or cease selling these productsaltogether.

Moreover, publishing the rule would force insurance agents toassociate with a broker-dealer–who may impose contractual terms,conditions “and sales quotas that make it practically impossible tocontinue to sell indexed annuities,” the letter said.

“These licensing hurdles, unprecedented compliance obligationsand costs, and marketplace realities all suggest that there will befewer individuals available to sell these products, which willinevitably produce less competition and result in consumers beingless ably served by their insurance advisors,” Mr. Symingtonargued.