Best interest in annuity transactions

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 and the basis for it, obtain a signed statement from the consumer regarding the failure to provide profile information, and obtain a signed statement from the consumer that acknowledges an annuity transaction is not recommended if the consumer decides to enter into a transaction that is not based on the agent's recommendation.

The bill also provides that an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity will effectively address the consumer's financial situation, insurance needs, and financial objectives based on the consumer's profile information. The bill also requires that insurers establish and maintain reasonable procedures to assess whether agents have provided consumers with the information required to be provided under the bill, to identify and address suspicious refusals by consumers to provide profile information, and to identify and eliminate contests, quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited time period.

The bill provides that recommendations and sales of annuities made in compliance with comparable standards, such as those under federal and state securities laws, satisfy the bill's requirements if the insurer satisfies certain conditions. Under current law, this standard is limited to requirements of the Financial Industry Regulatory Authority pertaining to suitability and supervision of annuity transactions.

Under the bill, insurance agents are required to, within six months of the bill's effective date, take a four credit training course approved by the commissioner of insurance or an additional one credit course provided by an education provider that is approved by the commissioner.

These provisions do not create or imply a private cause of action for a violation of the requirements or subject an insurance intermediary or insurer to civil liability under the best interest standard of care or fiduciary standards. The provisions also do not require an insurance intermediary to obtain any additional licensure.