§431:10D-623 Duties of insurers and insurance producers. (a) In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer based on the facts, including the consumer's suitability information, disclosed by the consumer about the consumer's investments, other insurance products, financial situation, and needs and that:
(1) The consumer has been reasonably informed of the various features of the annuity, including the potential surrender period and surrender charge; potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity; mortality and expense fees; investment advisory fees; potential charges for and features of riders; limitations on interest returns; insurance and investment components; and market risk;
(2) The consumer would benefit from certain features of the annuity, including tax-deferred growth, annuitization, or death or living benefit;
(3) The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of the purchase or exchange of the annuity, and riders and similar product enhancements, if any, are suitable and, in the case of an exchange or replacement, the transaction as a whole is suitable for the particular consumer; and
(4) In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable for the particular consumer taking into consideration whether:
(A) The consumer will incur a surrender charge; be subject to the commencement of a new surrender period; lose existing benefits such as death, living, or other contractual benefits; or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements;
(B) The consumer would benefit from product enhancements and improvements; and
(C) The consumer has had another annuity exchange or replacement, particularly an exchange or replacement within the preceding thirty-six months.
(b) Prior to the execution of a purchase, exchange, or replacement of an annuity resulting from a recommendation, an insurance producer, or an insurer where no producer is involved, shall make reasonable efforts to obtain the consumer's suitability information.
(c) Except as permitted under subsection (d), an insurer shall not issue an annuity that has been recommended to a consumer unless the insurer has a reasonable basis to believe the annuity is suitable for the particular consumer based on the consumer's suitability information.
(d)(1) Except as provided under paragraph (2), neither an insurance producer nor an insurer shall have any obligation to a consumer related to any annuity transaction if:
(A) No recommendation is made;
(B) A recommendation was made based on materially inaccurate information provided by the consumer;
(C) A consumer refuses to provide relevant suitability information and the annuity transaction is not recommended; or
(D) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance producer; and
(2) An insurer's issuance of an annuity subject to paragraph (1) shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.
(e) An insurance producer or a representative of the insurer, where no insurance producer is involved, shall at the time of sale:
(1) Make a record of any recommendation subject to this section;
(2) Obtain a signed statement from the consumer documenting the customer's refusal to provide suitability information, if applicable; and
(3) Obtain a signed statement from the consumer acknowledging that an annuity transaction is not recommended if a consumer decides to enter into an annuity transaction that is not based on the insurance producer's or insurer's recommendation.
(f) An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its insurance producers' compliance with this part, including:
(1) Reasonable procedures to inform the insurer's insurance producers of the requirements of this part, including incorporating the requirements of this part into relevant insurance producer training manuals;
(2) Standards for insurance producer product training, including reasonable procedures to require its insurance producers to comply with section 431:10D-626;
(3) Product-specific training and training materials that explain all material features of its annuity products to its insurance producers;
(4) Procedures for review of each recommendation prior to the issuance of an annuity to ensure that there is a reasonable basis to determine the suitability of a recommendation that may include additional review of selected transactions through electronic, physical, or other means; provided that the insurer may specify criteria for selection of transactions for additional review;
(5) Reasonable procedures to detect recommendations that are not suitable, including confirmation of consumer suitability information, systematic consumer surveys, interviews, confirmation letters, and programs of internal monitoring; provided that nothing in this paragraph shall prevent an insurer applying sampling procedures or confirming suitability information after issuance or delivery of the annuity;
(6) Annual review and testing of the supervision system which shall be documented in a report to the insurer's senior management, including the senior manager responsible for audit functions, to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any;
(7) Procedures for monitoring contracts and, as appropriate, conducting audits to assure that any contracted functions are properly performed; and
(8) Annual certification based on reasonable facts from a senior manager who has responsibility for contracted functions that the contracted functions are properly performed.
(g) An insurer may contract for performance of any functions, including maintenance of procedures, required by subsection (f)(1) to (6); provided that an insurer shall be responsible for taking any appropriate corrective action and may be subject to sanctions and penalties pursuant to section 431:10D-624 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with subsection (f).
(h) An insurer is not required to include in its system of supervision an insurance producer's recommendations to consumers of products other than the annuities offered by the insurer.
(i) An insurance producer shall not dissuade, or attempt to dissuade, a consumer from:
(1) Truthfully responding to an insurer's request for confirmation of suitability information;
(2) Filing a complaint; or
(3) Cooperating with the investigation of a complaint.
(j) Sales made in compliance with requirements of the Financial Industry Regulatory Authority or its successor agency pertaining to suitability and supervision of annuity transactions shall satisfy the requirements of this section; provided that an insurer that issues an annuity subject to this part shall:
(1) Monitor the sales by entities registered as broker-dealers with the Financial Industry Regulatory Authority of annuities issued by the insurer using information collected in the normal course of an insurer's business; and
(2) Provide the entity subject to paragraph (1) with any information and reports that are reasonably necessary to assist the entity in maintaining the supervision system required by the Financial Industry Regulatory Authority.
This subsection shall apply to sales of variable annuities and fixed annuities where suitability and supervision requirements are similar to those applied to variable annuity sales. Nothing in this subsection shall limit the insurance commissioner's ability to enforce this part. [L 2007, c 257, pt of §2; am L 2011, c 108, §5]