Standard/Duty of Care at the State Level

Next week at the IAdCA’s (Insurance Advertising Compliance Association) annual conference in Scottsdale, Arizona, I am co-presenting with Rod Perkins of the ACLI on “Regulatory Shifts in Standards of Care.”  We had initially planned this as a session on the DOL fiduciary rule, but as all readers know what we know about the future of the DOL rule can be summarized pretty quickly: “We don’t know.”  See some of the 1,000 plus comments received by the DOL as collated by Financial Planning.  Immediate enforcement seems off, a delay seems likely, confusion a sure thing.  But what we do know is that the standard of care owed in life insurance and annuity transactions is only going in one direction. Higher. That is coming in the context of suitability – not only on the front lines of determining what is an individual suitable sale, but also in the enforcement of annual reports to senior management. 

This week’s Bloomberg Businessweek has an article that could indicate that duties in the standard of care area could also come from another quarter: Democratic State Attorneys General.  Especially if the Trump administration does pull, water down, delay, or ignore enforcement of the DOL fiduciary rule.  In a piece called Blue State AGs: The Dems’ New Resistance, Erik Larson, Esme E. Deprez, and Kartikay Mehrotra, say “since the election, Democratic AGs have almost daily conference calls.” There is nothing in the article to suggest that the standard of care owed in insurance transactions is on this group’s radar – they are busy with the travel ban, other immigration issues and environmental protection regulations. But that does not mean that we won’t hear from them if the DOL’s rule gets rolled back like the EPA’s regulations. The article puts forward a reason why we very well could see such action: It explains this way: “Serving as a state attorney general is ‘probably the most direct path to higher office.’ Says Chris Wilson, founder of WPA Research, a political strategy firm. He should know: His firm did polling and data analysis for [Greg] Abbott’s gubernatorial campaign. In Texas, Abbott was able to run on his record of suing a locally unpopular president [former President Obama] more than 30 times. ‘You can build an entire campaign for higher office around that.’ Says Wilson. ‘The flip side is that you’re going to see a lot of Democrats angle for the same thing.’” How easy does it sound to campaign on the sound bites around the fiduciary rule? The details of the complicated exemptions and the challenge of effective and meaningful disclosure get lost so easily.

As is so often the case, those who would cheer the loudest at a roll-back of the DOL fiduciary rule may be sorry what they wished for. The reality is there are market place abuses and there should be a clear standard of care in insurance transactions, if not relationships. I would like to see that come from the state regulators who really understand the market and the abuses happening there. Suitability is a big step toward that standard of care, but the number of problems still out there make clear that it isn’t enough as currently written and enforced in most states. Companies with strong programs don’t get rewarded with more sales because those with weak programs don’t get penalized by fines.

Perhaps if the DOL rule becomes a footnote in history that never really came to pass and the state AGs become more active in this area again – like some were when the first suitability rule was drafted – that calculation will change. Perhaps state regulators will pick up the mantle and write new regulations or revise and enforce existing ones. Perhaps the DOL rule survives the Trump administration confusion on what to do and becomes effective. One way or another, it seems likely a higher standard of care is coming. Shouldn’t we, as an industry, get out in front and work with state regulators on what that should be rather than waiting to see what might happen in Washington DC or in court?