AB 654

Under current law, before an insurance agent, or insurer if no agent is involved,

can advise a prospective buyer to buy an annuity product, the agent or insurer must

have reasonable grounds to believe that the recommendation is not unsuitable for

the buyer. This bill modifies the existing suitability requirement based on a model

regulation of the National Association of Insurance Commissioners.

Under the bill, rather than using the suitability framework provided under

current law, an insurance agent must act in the best interest of the consumer under

the circumstances known at the time the recommendation is made, without placing

the financial interest of the agent or insurer ahead of the consumer's interest. The

bill provides that an agent acts in the consumer's best interest if the agent satisfies

obligations regarding care, disclosure, conflict of interest, and documentation.

Under the bill's care obligation, the agent must exercise reasonable diligence,

care, and skill in making a recommendation, which includes knowing the consumer's

financial situation, insurance needs, and financial objectives, understanding the

available options, having a reasonable basis to believe the recommended option

effectively addresses the consumer's financial situation, insurance needs, and

financial objectives, and communicating the basis of the recommendation to the

consumer. The bill requires the agent to have a reasonable basis to believe the

consumer will benefit from the annuity's features, make reasonable efforts to obtain

the consumer's profile information, and consider the types of products the agent is

authorized and licensed to recommend or sell that address the consumer's financial

situation, insurance needs, and financial objectives.

Under the bill's disclosure obligation, the agent must, prior to the

recommendation or sale, prominently disclose to the consumer a description of the

agent's relationship with the consumer and role in the transaction, a statement on

whether the agent is licensed and authorized to sell annuities and other products,

a statement describing the insurers for which the agent is authorized to sell

products, a description of the cash and noncash compensation to be received by the

agent, and notice of the consumer's right to request additional information regarding

cash compensation. The bill also requires that the agent disclose, upon request of

the consumer or designee, a reasonable estimate of the amount of cash compensation

to be received and whether the compensation is a one-time or multiple occurrence

amount. Additionally, the bill requires that the agent, prior to or at the time of the

recommendation or sale, have a reasonable basis to believe that the consumer has

been informed of various features of the annuity.

Under the bill's conflict of interest obligation, the agent must identify and avoid

or reasonably manage and disclose material conflicts of interest, including material

conflicts related to an ownership interest.

Under the bill's documentation obligation, the agent must, at the time of

making a recommendation or sale, make a written record of any recommendation