Insurance industry seeks carve out from Massachusetts ‘junk fees’ proposal

The insurance industry wants to be carved out of a Massachusetts proposal that targets “junk fees” in product sales, a stance that echoes their opposition to a Department of Labor investment-advice proposal that also has been promoted as a way to combat “junk fees” related to retirement-savings recommendations.

In a separate action, Empower, a major retirement-plan provider, urged the DOL to withdraw its rule in a comment letter filed Wednesday.

Late last month, Massachusetts Attorney General Andrea Joy Campbell released a proposal that prohibits companies from charging hidden fees – or “junk fees” – that deceptively push product sales prices above the level that is advertised. The measure would require a business to disclose the full price, including all fees, interest and other charges.

“These proposed regulations will not only ensure that consumers know what they are actually paying for when buying a good or service, but also level the playing field and market for those honest businesses that clearly disclose their pricing upfront,” Campbell said in a statement.

But certain parts of the proposal are impractical for insurance firms, said a group of insurance trade associations. For instance, a company would violate the proposed rule if it did not disclose the total price of a product prior to collecting a consumer’s personal information.

“Although this disclosure requirement may make sense for other industries, it would undermine the ability of life insurers to properly underwrite, thereby disrupting consumers’ access to financial and retirement security products,” the Life Insurance Association of Massachusetts, the American Council of Life Insurers and the Insured Retirement Institute wrote in a Dec. 20 comment letter. “Insurers must collect personal information during the underwriting process, before quoting a Total Price to a customer. Life and annuity carriers and distributors, for example, must collect personal information about a person’s age, general health, and financial situation before quoting a price and issuing a contract to a consumer. Insurance depends on the collection of personal information- up front, with the customer’s permission – to appropriately price the product.”

The DOL’s retirement security rule would hold to a fiduciary standard under federal retirement law most financial advisors and insurance agents who make recommendations to retirement savers and plans. The agency’s goal is to fill regulatory gaps that expose investors to conflicts that encourage advisors to charge what it calls “junk fees” as they pursue their revenue interests ahead of their customers’ and clients’ interests in building a nest egg. The DOL has highlighted insurance products, such as fixed indexed annuities, as a source of excessive fees.

But Empower, the second-largest retirement-plan provider, has joined many others in the financial industry to call for the agency to withdraw the proposal.

The firm said the proposal does not differ in any meaningful way from a similar rule that was vacated by a federal appeals court in 2018. It also said the proposal, which would apply to financial advice to retirement plans, could upend the adoption of such plans by businesses.

“By assigning fiduciary status to plan sales, the proposed rule will reduce the flow of information to employers looking to sponsor retirement plans,” Empower CEO Edmund Murphy wrote in a Dec. 20 comment letter. “This may reduce plan formation and is contrary to Congressional intent, specifically the SECURE Act and SECURE 2.0, which incentivized plan formation.”

During a Dec. 12 DOL hearing about the proposal, Assistant Secretary Lisa Gomez said the measure is much narrower than the 2016 rule and applies to relationships of “trust and confidence” between retirement advisors and investors and plans.

“The proposed rule aims to ensure that a common regulatory framework apply to all advice by trusted advisors regardless of the type of investment product, the type of investment professional making the recommendation or who is receiving the advice,” Gomez said. “Surely, whether one is recommending an annuity or a stock, working on a commission-basis or for a fee, the recommendation can and should reflect the best interests of the customer. That is it can be prudent loyal, candid and free from overcharges.”

The public comment period on the DOL proposal is open until Jan. 2.