Suitability of annuity contracts and granting rule-making authority

What it does

Summary by the Legislative Reference Bureau, the Legislature's nonpartisan drafting office. It's their wording, not ours.

Under current law, an insurance intermediary (intermediary), or insurer if no intermediary is involved, may not recommend to a consumer the purchase of an annuity, or recommend to a consumer the exchange of an annuity that results in an insurance transaction, unless the intermediary or insurer has reasonable grounds to believe that the recommendation is suitable for the consumer based on facts disclosed by the consumer as to his or her investments, other insurance products, and financial situation and needs. Before making a recommendation, the intermediary or insurer must make reasonable efforts to obtain information from the consumer about his or her financial status, tax status, and investment objectives. Current law requires insurers to have a system for supervising annuity transaction recommendations and provides certain requirements with which the supervisory system must comply. The commissioner of insurance (commissioner) may order an insurer or intermediary to take corrective action if a consumer is harmed by a violation of the provisions regulating annuity transaction recommendations, and the commissioner may promulgate rules to reduce or eliminate penalties for violations of the provisions if, after a violation is discovered, corrective action is promptly taken for the consumer.

This bill makes various changes to the annuity transaction provisions. The bill adds types of information that an insurer or insurance intermediary must consider when determining whether a recommendation to a consumer for the purchase, exchange, or replacement of an annuity is suitable (suitability information), such as the consumer's risk tolerance, liquidity needs, intended use of the annuity, and financial time horizon. In addition, the bill requires that the consumer have been reasonably informed of various specified features of the annuity; that the consumer would benefit from certain features of the annuity, such as tax-deferred growth; that the annuity as a whole is suitable; and that, in the case of an exchange or replacement, the transaction as a whole is suitable for the particular consumer, including taking into account such things as whether the consumer will incur a surrender charge or be subject to increased fees. While the intermediary or insurer must still make reasonable efforts to obtain the consumer's suitability information before making a recommendation, an insurer is prohibited from issuing an annuity that is recommended unless it is reasonable to believe that the annuity is suitable, based on the consumer's suitability information. The bill requires an intermediary or insurer, at the time of a sale, to make a record of any recommendation that was made; to obtain the consumer's signature that he or she refused to provide suitability information, if that is the case; and to obtain a signed statement from the consumer that the consumer is entering into an annuity transaction that was not recommended by the insurer or intermediary, if that is the case. The bill prohibits an intermediary from dissuading, or attempting to dissuade, a consumer from truthfully responding to a request for confirmation of suitability information or from filing a complaint or from cooperating with the investigation of a complaint.

Who's behind it

Bob Wirch, a Democrat, is its author⁠.

4 more lawmakers signed on in support⁠.

Versions and amendments

Every text the Legislature printed for this bill, including proposed changes. Each opens on the Legislature's site.

• Amendment SA1-SB572