Annuity Regulations

Annuities, like all financial products, are subject to strict rules and regulations regarding their structure, marketing and sales. As insurance products, annuities are primarily regulated by each state’s insurance commissioner. However, certain types of annuities also fall under federal regulation through the Securities and Exchange Commission (SEC) and are overseen by the Financial Industry Regulatory Authority (FINRA).

Organizations such as the National Association of Insurance Commissioners (NAIC) and the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) are multi-state collective associations that provide consumer protections and recommend regulatory proposals for adoption by multiple states.

While the states handle the majority of regulatory burden for overseeing insurance companies and insurance agents, federal regulation plays an important role with certain annuity products that stretch beyond the limits of pure insurance products and become securities products. Variable annuities and structured annuities, also known as registered-index linked annuities (RILAs), are the two types of annuities subject to both state and federal regulation.

Passed on April 23, 2024, and effective on September 23, 2024, the Retirement Security Rule redefines when a person is considered a fiduciary financial advisor, requiring them to adhere to fiduciary standards when providing guidance and advice to consumers.

The new rule will impact any professional financial advisor, including insurance agents, who work with retirement investors and offer recommendations for a fee or other direct or indirect compensation.

Note: As of this writing, this rule is currently being challenged in court. Changes or amendments to the final rules may occur depending on the outcome of the pending litigation

Each state is responsible for regulating its own insurance market and the insurance carriers operating within its borders. This allows for some variation in rules and standards of practice between states. However, the National Association of Insurance Commissioners (NAIC) supports state insurance commissioners by establishing best practices, sharing research and reports and conducting peer reviews. The NAIC is not a national regulator and has no regulatory authority. All licensing, investigative and regulatory authority rests solely with each state insurance commissioner.

The insurance industry is broad and complex, and each state insurance commissioner is responsible for overseeing all different types of insurance including life, health, property and casualty, long-term care, workers’ compensation and more. In regards to annuities specifically, state regulators are primarily focused on the licensure of agents, sales practices and the compliance of insurance carriers with the rules surrounding financial stability.

The insurance and annuity industry has numerous regulatory and consumer protection organizations, each playing a vital role in the marketplace.

As a collective organization, the NAIC consists of insurance commissioners from each state, the District of Columbia and five U.S. territories. Together, these members establish common standards and coordinate efforts on regulation and best practices. Although the NAIC primarily supports the chief regulators of each state, it also offers significant benefits to insurers and agents. It simplifies compliance for insurance companies and agents by providing uniform standards across states, reducing the complexity of navigating varying state-specific business practices.

The Securities and Exchange Commission (SEC) is a government agency responsible for regulating the securities market and creating rules for it. Its mission is to protect consumers and ensure an orderly and efficient marketplace. Annuities that include securities, such as variable annuities and structured annuities, are subject to the same securities laws as stocks and mutual funds.

The Financial Industry Regulatory Authority (FINRA) also regulates variable and structured annuities on a federal level. Unlike the SEC, which is a government agency, FINRA is a self-regulatory organization supported by U.S. broker-dealers. While FINRA’s members agree to follow its rules, it has no authority over non-members. FINRA cannot create laws or set federal policy—that responsibility lies with the SEC.

One of the most important roles of insurance regulatory bodies is to establish a strong foundation for consumer education and protection. Central to the duties of state insurance commissioners and federal regulators is their commitment to safeguarding consumers. Their responsibilities encompass overseeing financial stability, setting licensing standards and enforcing sales practice rules, all aimed at fostering confidence and stability within the industry.

Both regulatory organizations and insurance companies produce extensive educational materials for consumers. In addition to buyers’ guides, there are stringent regulations designed to protect consumers from both unethical practices and their own potential missteps.

Introduced in 2020, the NAIC’s Suitability in Annuity Transactions Model Regulation (#275) established uniform standards for states to follow in governing insurance agents’ conduct during sales and service interactions with consumers. This regulation mandates that insurance professionals clearly explain product details, disclose any conflicts of interest and adhere to a duty of care that prioritizes recommending solutions that are in the best interest of the consumer.

These standards have been adopted by 45 states, with four more states pending adoption as of June 2024. New York State has not adopted these rules but has implemented its own regulations governing annuity transactions.

NOLHGA membership includes all 50 states and the District of Columbia and supports the guaranty associations underpinning the insurance markets of each state. In the case that an insurer is unable to pay their policies or becomes insolvent, each state guaranty association exists to provide a financial backstop for consumers’ contracts. A state would place an insurer in receivership and the guaranty association would cover the benefits owed to consumers up to the state mandated limits. Each state has its own limits on the amount guaranteed per person and per policy.

For more information on state guarantees, research your state.

At Annuity.org, our team is dedicated to providing high-quality, unbiased analysis of the annuity landscape for both consumers and professionals. For more personalized advice, working with an agent or financial advisor can offer a trusted resource to help you navigate the most relevant financial information.

If you prefer to stay directly informed, keeping up with regulatory changes and industry updates has never been easier. Beyond traditional news sources, regulators offer their own online news and resources, including interactive lessons to help you stay current with the latest guidance.