33-20-805. Duties of insurers, insurance producers, and independent agencies. (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 when an insurance producer is not involved must 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 the consumer's investments, other insurance products, financial situation, and needs, including the consumer's suitability information, and that there is a reasonable basis to believe all of the following:

(a) the consumer has been reasonably informed of 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;

(b) the consumer would receive a benefit from the transaction;

(c) the particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of the purchase, exchange, or replacement of the annuity, and riders and similar product enhancements, if any, are suitable for the particular consumer based on the consumer's suitability information; and

(d) in the case of an exchange or replacement of an annuity, the exchange or replacement is suitable, including taking into consideration whether:

(i) the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements;

(ii) the consumer would benefit from product enhancements and improvements;

(iii) the consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 36 months; and

(iv) the transaction as a whole is suitable for the consumer based on the consumer's suitability information.

(2) Prior to the execution of a purchase, exchange, or replacement of an annuity resulting from a recommendation, an insurance producer or an insurer when an insurance producer is not involved shall make reasonable efforts to obtain the consumer's suitability information.

(3) Except as permitted under subsection (4), an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity is suitable based on the consumer's suitability information.

(4) (a) Except as provided under subsection (4)(b), an insurance producer or an insurer when an insurance producer is not involved does not have any obligation to a consumer under subsection (1) or (3) related to any annuity transaction if:

(i) no recommendation is made;

(ii) a recommendation is made but later found to have been prepared based on materially inaccurate information provided by the consumer;

(iii) the consumer refuses to provide relevant suitability information requested by the insurer or insurance producer and the annuity transaction is not recommended; or

(iv) the consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or insurance producer.

(b) An insurer's or insurance producer's issuance of an annuity under subsection (4)(a) must be reasonable under all the circumstances actually known or which after reasonable inquiry should be known to the insurer or insurance producer at the time the annuity is issued.

(5) An insurance producer or an insurer when an insurance producer is not involved shall at the time of sale:

(a) make a record of any recommendation subject to subsection (1);

(b) obtain a statement signed by the consumer acknowledging the consumer's refusal to provide suitability information, if any; and

(c) if a consumer decides to enter into an annuity transaction that is not based on the insurance producer's or insurer's recommendation, obtain a statement signed by the consumer acknowledging that the annuity transaction is not recommended.

(6) 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 section and, at a minimum, shall:

(a) maintain reasonable procedures to inform its insurance producers of the requirements of this section and shall incorporate the requirements of this section into relevant insurance producer training manuals;

(b) establish standards for insurance producer product training and maintain reasonable procedures to require its insurance producers to comply with the requirements of 33-20-807;

(c) provide product-specific training and training materials that explain all material features of its annuity products to its insurance producers;

(d) maintain procedures that are designed to ensure that there is a reasonable basis for determining that a recommendation is suitable for the consumer prior to issuance of an annuity. The review procedures must establish selection criteria for the purpose of identifying selected transactions for additional review.

(e) maintain reasonable procedures, such as confirmation of consumer suitability information, systematic consumer surveys, interviews, confirmation letters, and programs of internal monitoring, to detect recommendations that are not suitable; and

(f) annually provide a report to senior management, including to the senior manager responsible for audit functions, that details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

(7) (a) An insurer may contract with a third party to establish and maintain a system of supervision as provided for in subsection (6).

(b) An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under 33-1-317 and 33-1-318 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with subsection (7)(c).

(c) An insurer's supervision system under subsection (6) must include supervision of the performance of third parties under this subsection (7) and must include, at a minimum, the following:

(i) annually obtaining a certification from a director, officer, or principal of the third party that the third party is performing the required functions; and

(ii) monitoring and, as appropriate, conducting audits to ensure that the third parties are performing the required functions.

(8) An insurer is not required by this section to:

(a) review or provide for review of insurance producer solicited transactions not related to annuities; or

(b) include in its system of supervision an insurance producer's recommendations to consumers of products other than the annuities offered by the insurer.

(9) An insurance producer or an insurer when an insurance producer is not involved may not dissuade or attempt to dissuade a consumer from:

(a) truthfully responding to an insurer's request for confirmation of suitability information;

(b) filing a complaint; or

(c) cooperating with the investigation of a complaint.

(10) (a) Insurers, insurance producers, and independent agencies shall maintain or must 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 5 years after the insurance transaction is completed by the insurer. An insurer is permitted, but is not required, to maintain documentation on behalf of an insurance producer.

(b) Records required to be maintained by this section may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media or by any process that accurately reproduces the actual document.

History: En. Sec. 5, Ch. 476, L. 2007; amd. Sec. 5, Ch. 324, L. 2017.