SB 572

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