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NAIC Advances Senior Protection in Annuity Transactions Model Regulation

Source: www.insurancenewsnet.com
07/21/03

KANSAS CITY, MO (July 21, 2003) - The National Association of Insurance Commissioners (NAIC) Life Insurance and Annuities (A) Committee today adopted a model regulation designed to help protect senior consumers when they purchase, surrender or otherwise dispose of annuity products. The goal of the new model regulation is to ensure the insurance needs and financial objectives of persons age 65 or older-senior consumers-are appropriately addressed.

"Insurance consumers who are retired, or are nearing retirement, deserve to be able to make insurance and financial choices with the highest degree of confidence," said Utah Insurance Commissioner Merwin Stewart, who also serves as Chair of the NAIC Life Insurance and Annuities (A) Committee.

The new regulation sets forth standards and procedures for insurers and insurance producers relating to the sale, surrender or other disposition of annuity products involving senior consumers as follows:

• In recommending to a senior consumer the purchase or the surrender or other disposition of an annuity that results in another insurance transaction, the insurance producer, or the insurer where no producer is involved, must have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of the facts disclosed by the senior consumer as to his or her investments and other insurance products and as to his or her financial situation.
• Prior to the purchase, surrender or other disposition of an annuity based on a recommendation by an insurance producer or an insurer (where no producer is involved) there must be reasonable efforts to obtain information about the senior consumer's financial status, tax status, investment objectives, and other information that could be reasonably considered by the insurance producer or insurer in making recommendations to the senior consumer.
• Neither an insurance producer, or an insurer where no producer is involved, will have any obligation to a senior consumer related to any annuity transaction if a consumer refuses to provide relevant information requested by the insurer or insurance producer, decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance producer, or fails to provide complete or accurate information. An insurer or insurance producer's recommendation will be considered reasonable under the circumstances actually known to the insurer or producer at the time of the recommendation.
• An insurer must establish and maintain a system covering recommendations it makes to senior consumers that is reasonably designed to achieve compliance with the regulation. (Details on how to check for compliance were added during the conference call.) An insurer may meet its obligations by testing or conducting audits.
• Compliance with the National Association of Securities Dealers Conduct Rules regarding suitability will satisfy the requirements for variable annuities. However, this does not limit the insurance commissioner's ability to enforce the provisions of the new regulation.

Additionally, the model regulation does exempt insurers and insurance producers from recommendations involving direct-response solicitations (where recommendations are not based on information provided by the consumer pursuant to the regulation), as well as various funded contracts covered under federal law.

About the NAIC

Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and four U.S. territories. The association's overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, it is the oldest association of state officials. For more information, visit NAIC on the Web at www.naic.org/pressroom.

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