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

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

Charles Symington, IIABA senior vice president of government affairs, said “as with nearly every type of financial services product, there have been examples of troubling sales practices,” which was the justification the SEC and FINRA [Financial Industry Regulatory Authority] gave for seeking to impose federal oversight on sale of EIAs.

“These problematic activities, however, are not the norm, and appropriate and meaningful actions are being taken by state insurance regulators to prevent misleading and fraudulent activities and punish those who engage in them,” Mr. Symington said.

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

“Federal regulation, in this and other contexts, does not necessarily produce better regulation,” said the IIABA. The organization is also asking that the comment period on the proposal be extended so congressional pressure can be brought to bear against the proposal.

The issue arose from the decision of the SEC and the Federal Industry Regulatory Authority to establish federal oversight over EIAs.

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

The IIABA says it is commenting on the issue because a number of its members, besides selling property-casualty products, also offer life and health insurance products, including EIAs, to their customers.

The IIABA letter was signed by Mr. Symington. It says the SEC proposal “ignores the fact that indexed annuities are a form of fixed annuity that ensures a minimum guaranteed rate of return.”

Mr. Symington said in the letter that the proposed rule “not only fails to provide clear benefits to consumers, but the unnecessary imposition of federal oversight will actually reduce competition and responsiveness to consumer needs while imposing significant costs on the private sector.”

He also argues that the proposal “does not adequately consider the effects of this proposal upon state-licensed insurance producers who currently engage in the sale of indexed annuities.”

Specifically, he said, changing the definition of “annuity” to include EIAs would force insurance agents to become licensed as registered representatives, or cease selling these products altogether.

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

“These licensing hurdles, unprecedented compliance obligations and costs, and marketplace realities all suggest that there will be fewer individuals available to sell these products, which will inevitably produce less competition and result in consumers being less ably served by their insurance advisors,” Mr. Symington argued.

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IIABA Bashes SEC Indexed Annuities Proposal

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