R590. Insurance, Administration.
R590-230. Suitability in Annuity Transactions. (Effective
8-29-06)
R590-230-1. Authority.
This rule is promulgated pursuant to Section 31A-22-425 wherein the
commissioner is to make rules to establish standards for recommendations and
Subsection 31A-2-201(3)(a) wherein the commissioner may make rules to implement
the provisions of Title 31A.
R590-230-2. Purpose.
(1) The purpose of this rule is to set forth
standards and procedures for recommendations to consumers that result in a
transaction involving annuity products so that the insurance needs and financial
objectives of consumers at the time of the transaction are appropriately
addressed.
(2) Nothing herein shall be construed to create or imply a private cause
of action for a violation of this rule.
R590-230-3. Scope.
(1) This rule shall apply to any recommendation to purchase or exchange an
annuity made to a consumer by an insurance producer, or an
insurer where no producer is involved, that results in the recommended purchase
or exchange.
(2) Unless otherwise specifically included, this rule shall not apply to
recommendations involving:
(a) direct response solicitations where there is
no recommendation based on information collected from the consumer pursuant to this rule;
and
(b) contracts used to fund:
(i) an employee pension or welfare benefit plan that is covered by the
Employee Retirement and Income Security Act (ERISA);
(ii) a plan described by Internal Revenue Code (IRC) Sections 401(a),
401(k), 403(b), 408(k) or 408(p), as amended, if established or maintained by an
employer;
(iii) a government or church plan defined in IRC Section 414, a government
or church welfare benefit plan, or a deferred compensation plan of a state or
local government or tax exempt organization under IRC Section 457;
(iv) a nonqualified deferred compensation arrangement established or
maintained by an employer or plan sponsor;
(v) settlements of or assumptions of liabilities associated with personal
injury litigation or any dispute or claim resolution process; or
(vi) formal prepaid funeral contracts.
R590-230-4. Definitions.
In addition to the definitions in Section 31A-1-301, the following
definitions shall apply for the purpose of this rule:
(1) "Annuity" means:
(a) an annuity as defined in Section 31A-1-301; and
(b) a fixed annuity or variable annuity that is individually solicited,
whether the product is classified as an individual or group annuity.
(2) "Recommendation" means advice provided by an
insurance producer, or an insurer where no producer is involved, to an
individual consumer
that results in a purchase or exchange of an annuity in accordance with that
advice.
R590-230-5. Duties of Insurers and of Insurance Producers.
(1) 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 on the basis of
the facts disclosed by the consumer as to his or
her investments and other insurance products and as to his or her financial
situation and needs.
(2) Prior to the execution of a purchase or exchange of an annuity
resulting from a recommendation, an insurance producer, or an insurer where no
producer is involved, shall make reasonable efforts to obtain information
concerning:
(a) the consumer's financial status;
(b) the consumer's tax status;
(c) the consumer's investment objectives; and
(d) such other information used or considered to
be reasonable by the insurance producer, or the insurer where no producer is
involved, in making recommendations to the consumer.
(3)(a) Except as provided under Subsection
(3)(b), neither an insurance producer, nor an insurer where no producer is
involved, shall have any obligation to a consumer under Subsection (1) related to any
recommendation if a consumer:
(i) refuses to provide relevant information requested by the insurer or
insurance producer;
(ii) decides to enter into an insurance transaction that is not based on a
recommendation of the insurer or insurance producer; or
(iii) fails to provide complete or accurate information.
(b) An insurer or insurance producer's recommendation subject to
Subsection (3)(a) shall be reasonable under all the circumstances actually known
to the insurer or insurance producer at the time of the recommendation.
(4)(a) An insurer either shall assure that a system to supervise
recommendations that is reasonably designed to achieve compliance with this rule
is established and maintained by complying with Subsections (4)(c) to (4)(e) or
shall establish and maintain such a system, including:
(i) maintaining written procedures; and
(ii) conducting periodic reviews of its records that are reasonably
designed to assist in detecting and preventing violations of this rule.
(b) A general agent and independent agency either shall adopt a system
established by an insurer to supervise recommendations of its insurance
producers that is reasonably designed to achieve compliance with this rule, or
shall establish and maintain such a system, including:
(i) maintaining written procedures; and
(ii) conducting periodic reviews of records that are reasonably designed
to assist in detecting and preventing violations of this rule.
(c) An insurer may contract with a third party, including a general agent
or independent agency, to establish and maintain a system of supervision as
required by Subsection (4)(a) with respect to insurance producers under contract
with or employed by the third party.
(d) An insurer shall make reasonable inquiry to assure that the third
party contracting under Subsection (4)(c) is performing the functions required
under Subsection (4)(a) and shall take such action as is reasonable under the
circumstances to enforce the contractual obligation to perform the functions. An
insurer may comply with its obligation to make reasonable inquiry by doing all
of the following:
(i) the insurer annually obtains from a third party's senior manager, who
has responsibility for the delegated functions, a certification that the manager
has a reasonable basis to represent, and does represent, that the third party is
performing the required functions; and
(ii) the insurer, based on reasonable selection criteria, periodically
selects third parties contracting under Subsection (4)(c) for a review to
determine whether the third parties are performing the required functions. The
insurer shall perform those procedures to conduct the review that are reasonable
under the circumstances.
(e) An insurer that contracts with a third party pursuant to Subsection
(4)(c) and that complies with the requirements to supervise in Subsection (4)(d)
of this subsection shall have fulfilled its responsibilities under Subsection
(4)(a).
(f) An insurer, general agent or independent agency is not required by
Subsection (4)(a) or (4)(b) to:
(i) review, or provide for review of all insurance producer solicited
transactions; or
(ii) include in its system of supervision an insurance producer's
recommendations to consumers of products other than the
annuities offered by the insurer, general agent or independent agency.
(g) A general agent or independent agency contracting with an insurer
pursuant to Subsection (4)(c), shall promptly, when requested by the insurer
pursuant to Subsection (4)(d), give a certification as described in Subsection
(4)(d) or give a clear statement that the third party is unable to meet the
certification criteria.
(h) No person may provide a certification under Subsection (4)(d)(i)
unless:
(i) the person is a senior manager with responsibility for the delegated
functions; and
(ii) the person has a reasonable basis for making the certification.
(5) Compliance with the National Association of Securities Dealers (NASD)
Conduct Rules pertaining to suitability shall satisfy the requirements under
this section for the recommendation of variable annuities. However, nothing in
this subsection shall limit the commissioner's ability to enforce the provisions
of this rule.
R590-230-6. Mitigation of Responsibility.
(1) The commissioner may order:
(a) an insurer to take reasonably appropriate
corrective action for any consumer harmed by the insurer's, or by its insurance producer's, violation
of this rule;
(b) an insurance producer to take reasonably
appropriate corrective action for any consumer harmed by the insurance producer's violation of
this rule; and
(c) a general agency or independent agency that
employs or contracts with an insurance producer to sell, or solicit the sale, of
annuities to consumers, to take reasonably appropriate corrective action for any consumer harmed by the insurance producer's violation of this rule.
(2) Any applicable penalty under 31A-2-308 for a
violation of Subsection R590-230-5.(1), (2), or (3)(b) may be reduced or
eliminated if corrective action for the consumer was taken promptly after a violation was
discovered.
R590-230-7. Records.
Insurers, general agents, independent agencies and
insurance producers shall maintain or be able to make available to the
commissioner records of the information collected from the consumer and other information
used in making the recommendations that were the basis for insurance
transactions for the current calendar year plus three years after the insurance
transaction is completed by the insurer. An insurer is permitted, but shall not
be required, to maintain documentation on behalf of an insurance producer.
R590-230-8. Enforcement Date.
The commissioner will begin enforcing the revised
provisions of this rule 45 days from the rule's effective date.
R590-230-9. Severability.
If any provision of this rule or the application of it to any person or
circumstance is for any reason held to be invalid, the remainder of the rule and
the application of the provision to other persons or circumstances shall not be
affected by it.
KEY: insurance, annuity
suitability
Date of Enactment: June 3, 2004
Last Substantive Amendment: August 29, 2006
Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-22-425
[Back to Top]
|