Who Regulates Fixed Annuities?

Purchasing an annuity is an important decision. You’ll want to know that the company you purchase the annuity contract from is financially sound and that the products meet strict standards. This is the role of the state insurance department and, in some cases, federal regulatory agencies.

All types of annuities are regulated at the state level by each state’s insurance department. Federal agencies also regulate more complex annuity products that feature investment risk. We will review those products and agencies in a moment.

Traditional fixed annuities are simple products with no variable investment components. Because of this simplicity, fixed annuities are only regulated by state insurance departments and have no federal regulatory oversight.

State Insurance Commissioners

State insurance departments (and the commissioner who oversees the department’s operations) play an integral role in regulating insurance companies, approving products for sale in their state, and creating rules around suitability and training requirements for the sale of annuities.

Regulating Companies

Before approving an insurer’s license to sell products, the department reviews a company’s financial solvency, including the company’s capital, surplus, and profitability. If the company meets specific state guidelines, the commissioner issues a license for the company to sell its products.

Regulating Products

Annuity products are also filed with the state commissioner's office to ensure that they conform to the requirements of the insurance laws of their state.

Regulating the Sale of Annuities

Most states, like Connecticut, Delaware, and North Dakota, require that agents who sell annuities complete product-specific training courses and/or a general annuity training course before selling. The training gives agents a general understanding of annuities and ensures they can skillfully and accurately discuss specific carriers' products.

The National Association of Insurance Commissioners

The National Association of Insurance Commissioners (NAIC) is the standard-setting and regulatory support organization created and governed by insurance commissioners from the 50 states, the District of Columbia, and five U.S. territories.

The NAIC helps its members manage industry issues, including:

• Training and accreditation programs for agents
• Consumer protection and market competitiveness
• Financial reporting oversight and guidance
• Cybersecurity
• Consumer education
• Model regulation creation, including annuity suitability guidelines to protect consumers

This last bullet is important from an annuity sales perspective. Since 2003, state insurance departments have overseen the sale of annuities to ensure that products sold to consumers are suitable for them, based on a review of their specific and unique needs.

This should give buyers some peace of mind that insurance agents, and their companies, are required by the NAIC to make selling decisions that are in the best interests of their customers.

Links to State Insurance Websites

Each state insurance commission has its own website where you can research the details on all available insurance products before purchasing them. You can use these sites to find the records for the insurance company you are thinking about buying an annuity from and the person who is selling or recommending the product to you.

Each site is a little different but you can usually find information about annuity products under the life insurance section.

• Alabama
• Louisiana
• Oklahoma
• Alaska
• Maine
• Oregon
• Arizona
• Maryland
• Pennsylvania
• Arkansas
• Massachusetts
• Puerto Rico
• California
• Michigan
• Rhode Island
• Colorado
• Minnesota
• South Carolina
• Connecticut
• Mississippi
• South Dakota
• Delaware
• Missouri
• Tennessee
• District of Columbia
• Montana
• Texas
• Florida
• Nebraska
• Utah
• Georgia
• Nevada
• Vermont
• Hawaii
• New Hampshire
• Virginia
• Idaho
• New Jersey
• Washington
• Illinois
• New Mexico
• West Virginia
• Indiana
• New York
• Wisconsin
• Iowa
• North Carolina
• Wyoming
• Kansas
• North Dakota
• Kentucky
• Ohio

Keep in mind that while state insurance websites can provide you with information on insurance companies and specific annuity products, you’ll still want to develop a familiarity with how these products work.

We’ve put together several resources to help people who are new to annuities learn more so that they can make informed decisions before purchasing. Here are some of the best places to start your research:

• How Do Annuities Work?
• Annuitant vs. Annuity Owner
• Immediate Annuities vs. Tax-Deferred Annuities
• Are Annuities a Safe Investment?
• Annuity Payout Options
• Annuity Death Benefits
• Annuity Surrender Charges

Does the Federal Government Play a Role?

Yes, but not for fixed annuities. Since the federal government oversees capital markets (stock markets, mutual funds, etc.), index-linked and variable annuities are subject to federal oversight if the annuity product has features linked to these markets.

Variable annuities, for instance, produce returns linked to underlying funds that are usually connected to the stock market. Therefore they are regulated by both state and federal agencies. Indexed annuities with links to market indexes as investment options fall under the same oversight.

Federal oversight agencies include:

• The Securities and Exchange Commission (SEC) — The mission of the SEC is to protect investors, maintain fair and orderly investment markets and help facilitate capital formation.
• The Financial Industry Regulatory Authority (FINRA) — Oversees broker-dealers in the United States to ensure that they treat consumers fairly, are well-trained and licensed, and are only presenting suitable products and proper disclosures to their clients.

Key Takeaways

The financial markets in the United States are well-regulated, driven by the outcomes of events like the stock market crash of 1929 and the recession of 2008. Life insurance companies that issue annuity products are held to a high standard by these agencies, and rightfully so!

After all, when consumers buy a financial product, especially one that manages funds as part of a retirement plan, there should be advocates in place.

State insurance departments regulate fixed annuities because they do not have securities as underlying investments. The issuing insurance company provides guaranteed interest rates, making investments generally in stable vehicles like bonds.