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ARIZONA HOUSE OF REPRESENTATIVESFifty-fourth Legislature Second Regular Session |
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SB 1557: annuity transactions; requirements
Sponsor: Senator Livingston, LD 22
Committee on Regulatory Affairs
Overview
Amends statutes relating to the duties of an insurer who recommends an annuity to a consumer.
History
In recommending the purchase or exchange of an annuity to a consumer that results in a transaction, an insurance producer (Producer) or insurer must have reasonable grounds for believing that the recommendation is suitable for the consumer based on the facts disclosed by the consumer as to the consumer’s investments and other insurance products and as to the consumer’s financial situation and needs. The Producer or insurer must make reasonable efforts to obtain information concerning the consumer's financial status, tax status, investment objectives and any other pertinent information. The Insurer does not have any obligation to the consumer if the consumer:
1) Refuses or fails to provide complete or accurate information; or
2) Decides to enter into an insurance transaction that is not based on the insurer's recommendation (A.R.S. § 20-1243.03).
The Director of the Department of Insurance (Director) may order a business entity that employs or contracts with a Producer to take reasonable corrective action for any consumer who is harmed by a violation on the part of the Producer (A.R.S. § 20-1243).
Before selling, soliciting or negotiating an annuity, a Producer with a life insurance line of authority must complete an approved four credit-hour training course. Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with continuing education statute and rules of DOI. Completion of substantially similar training requirements of another state satisfy the requirements (A.R.S. § 20-1243.07).
Provisions
Duties of Insurers and Producers (Sec. 4)
1. States that when a Producer recommends an annuity (Recommendation), the Producer must act in the interest of the consumer under the circumstances known at the time of recommendation is made and without placing the Producer's financial interest ahead of the consumers.
2. Stipulates that the Producer has acted in the best interest of the consumer if the Producer has satisfied the obligations regarding care, disclosure, conflict of interest and documentation.
3. States that to satisfy the care obligation in making a Recommendation, the Producer must exercise reasonable diligence, care and skill to do all of the following:
a) Know the consumer's financial situation, insurance needs and financial objectives (Situation);
b) 
Understand the available recommended
options;
c) Have a reasonable basis to believe both of the following:
i. The recommended option effectively addresses the consumer's Situation over the life of the product;
ii. The consumer would benefit from features of an annuity, such as annuitization, death or living benefits or other insurance-related features.
d) Communicate the basis of the recommendation;
e) Make a reasonable effort to obtain consumer profile information from the consumer before recommending an annuity;
f) Consider the types of products the Producer is authorized and licensed to recommend or sell that address the consumer's Situation and the Producer:
i. Is not required to consider any products outside the Producer's license or other products available at the time of the recommendation;
ii. Must be held to standards that apply to Producers with similar authority and licensure.
g) In the case of an exchange or replacement of an annuity, the Producer must consider whether:
i. The consumer will incur a surrender charge, be subject to a new surrender period, lose existing benefits or be subject to increased fees;
ii. The replacement product would substantially benefit the consumer in comparison to the current product over the life of the product;
iii. The consumer has had another exchange or replacement of an annuity, in particular, within the preceding sixty months.
4. States that the requirements under the best interest and care obligations do not create a fiduciary obligation or relationship and only create a regulatory obligation.
5. Outlines the circumstances in which care obligation requirements are applicable.
6. States that under the care obligation, the consumer profile information, characteristics of the insurer and product costs, rates, benefits are the relevant factors in deciding whether an annuity addresses the consumer's Situation.
a) States that the importance of factors may vary by case and each factor may not be considered in isolation.
7. Outlines the information required to satisfy the disclosure obligation that the Producer must provide to a consumer on a form before making a Recommendation.
a) The disclosure obligation form must be substantially similar to the "Insurance Agent (Producer) Disclosure for Annuities" form from the 2020 National Association of Insurance Commissioners Suitability in Annuity Transactions Model Regulation.
8. States that under the disclosure obligation, the Producer must have a reasonable basis to believe that the consumer has been informed of the specified features, potential charges or tax penalties, fees, interest returns and market risk of the annuity.
9. States that to satisfy the conflict of interest obligation, the Producer must identify and avoid or reasonably manage and disclose material conflicts of interest, including ownership interest.
10. Outlines the requirements to satisfy the documentation obligation that must be completed by the Producer at the time of the Recommendation or sale.
11. States that the aforementioned provisions apply to every Producer who has exercised material control or influence in the making of a Recommendation and has received direct compensation as a result of the Recommendation, regardless of whether the Producer has had any direct contact with the consumer.
12. Outlines activities that do not constitute material control or influence.
13. States that an insurer's issuance of an annuity must be reasonable under all the known circumstances at the time.
14. States that a Producer has no other obligation under the aforementioned provisions to a consumer relating to an annuity transaction if:
a) No Recommendation is made;
b) A Recommendation was made based on materially inaccurate information provided by the consumer;
c) The consumer refuses to provide relevant profile information and the annuity transaction is not recommended; or
d) The consumer decides to enter into an annuity transaction that is not based on a Recommendation.
15. Outlines the requirements of each insurer to establish and maintain a supervision system (System) that is designed to achieve the insurer's and its Producers' compliance with the aforementioned provisions.
16. States that an insurer may contract for performance of a function, including maintenance of procedures, but is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to specified statute.
17. Outlines what an insurer's System must include for supervision of contractual performance.
18. Outlines what an insurer is not required to include in its System.
19. States that a Producer or an insurer, can not dissuade, or attempt to dissuade, a consumer from:
a) Truthfully responding to an insurer's request for confirmation of the consumer profile information;
b) Filing a complaint; or
c) Cooperating in the investigation of a complaint.
20. States that the Recommendations and sales of annuities made by financial professionals that comply with comparable standards satisfy the requirements of the aforementioned provisions.
a) The Recommendations and sales of annuities made by financial professionals does not limit the Director's ability to enforce pertinent statute.
21. States that the insurer can base its analysis on a consumers Situation in information received from either a financial professional or the entity supervising a financial professional.
22. Outlines the criteria insurers must follow to comply with Recommendations and sales of annuities made by financial professionals.
Compliance, Enforcement & Penalties (Sec. 5)
23. States that an insurer is responsible for compliance and if a violation occurs, either because of the action or inaction of the insurer or its Producer, the director can order:
a) The insurer to contract an entity to perform the insurer's supervisory duties;
b) A general agency or independent agency to take reasonably appropriate corrective action; and
c) Appropriate penalties and sanctions.
24. Removes a business entity that employs or contracts with a Producer for annuities sales from taking reasonably appropriate corrective action.
25. Authorizes the Director to reduce or eliminate any applicable penalty if the violation was not part of a pattern or practice.
26. States that the authority to enforce compliance is vested exclusively with the Director.
Miscellaneous
27. States that the provisions do not create or imply a private cause of action for a violation or subject a Producer to civil liability under the best interest standard of care or under standards of a fiduciary or fiduciary relationship. (Sec. 2)
28. Adds independent agencies to the list of entities that are able to make Recommendation records available to the Director. (Sec. 6)
29. States that completion of any course or courses with components that are substantially similar satisfy the Producer training requirements. (Sec. 7)
30. Requires a Producer who has completed an annuity training course, to complete the following within six months after the effective date:
a) A new four credit hour annuity training course approved by the Director; and
b) An additional one credit hour annuity training course approved by the Department of Insurance and Financial Institutions on appropriate sales practices, replacement and disclosure requirements. (Sec. 8)
31. Defines pertinent terms. (Sec. 1, 4)
32. Contains a delayed effective date of January 1, 2021. (Sec. 9)
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