628.347 Suitability in annuity transactions.

(1) Definitions. In this section:

(a) “Annuity" means an annuity that is an insurance product that is individually solicited, whether the product is classified as an individual or group annuity.

(am) “FINRA" means the Financial Industry Regulatory Authority or a succeeding agency.

(b) “Recommendation" means advice provided by an insurance intermediary, or an insurer if no intermediary is involved, to an individual consumer that results in the purchase, exchange, or replacement of an annuity in accordance with that advice.

(d) “Replacement" means a transaction in which a new annuity is to be purchased and it is known, or should be known to the proposing insurance intermediary, or to the proposing insurer if no intermediary is involved, that by reason of the transaction an existing policy or contract has been or is to be any of the following:

1. Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated.

2. Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.

3. Amended so as to effect either a reduction in benefits or a reduction in the term for which coverage would otherwise remain in force or for which benefits would otherwise be paid.

4. Reissued with a reduction in cash value.

5. Used in a financed purchase.

(e) “Suitability information" means information that is reasonably appropriate to determine the suitability of a recommendation, including all of the following:

1. Age.

2. Annual income.

3. Financial situation and needs, including the financial resources used for the funding of the annuity.

4. Financial experience.

5. Financial objectives.

6. Intended use of the annuity.

7. Financial time horizon.

8. Existing assets, including investment and life insurance holdings.

9. Liquidity needs.

10. Liquid net worth.

11. Risk tolerance.

12. Tax status.

(2) Duties of insurers and insurance intermediaries with regard to recommendations and issuance of annuities.

(a) In recommending to a consumer the purchase of an annuity, or the exchange of an annuity that results in an insurance transaction or series of insurance transactions, an insurance intermediary, or insurer if no intermediary is involved, shall have reasonable grounds to believe that the recommendation is suitable for the consumer on the basis of facts disclosed by the consumer as to his or her investments, other insurance products, and financial situation and needs, including the consumer's suitability information, and that all of the following are true:

1. The consumer has been reasonably informed of various features of the annuity, such as 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, such as 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 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 based on his or her suitability information.

4. In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable, including taking into consideration all of the following:

a. Whether 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. Whether the consumer would benefit from product enhancements and improvements.

c. Whether the consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 36 months.

(b) Before making a recommendation described in par. (a), an insurance intermediary, or insurer if no intermediary is involved, shall make reasonable efforts to obtain the consumer's suitability information.

(bm) Except as permitted under par. (c), an insurer may not issue an annuity that is recommended by the insurer or its insurance intermediary to a consumer unless it is reasonable to believe that the annuity is suitable based on the consumer's suitability information.

(c)

1. Subject to subd. 2., neither an insurance intermediary nor an insurer has any obligation to a consumer under par. (a) or (bm) related to any annuity transaction if any of the following applies:

a. Neither the insurance intermediary nor the insurer made a recommendation.

b. The insurance intermediary or insurer made a recommendation but the recommendation was later found to have been prepared based on inaccurate material information provided by the consumer.

c. The consumer refuses to provide relevant suitability information and the annuity transaction is not recommended.

d. The consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance intermediary.

2. An insurer's issuance of an annuity under circumstances specified in subd. 1. a. to d. shall be reasonable under all circumstances actually known to the insurer at the time the annuity is issued.

(dm) An insurance intermediary, or insurer if no intermediary is involved, shall at the time of sale do all of the following:

1. Make a record of any recommendation subject to par. (a).

2. Obtain a customer-signed statement documenting a customer's refusal, if any, to provide suitability information.

3. If a customer decides to enter into an annuity transaction that is not based on the insurance intermediary's or insurer's recommendation, obtain a customer-signed statement acknowledging that the annuity transaction is not recommended by the intermediary or insurer.

(3) Insurer's supervisory responsibility.

(a) An insurer shall establish a supervision system that is reasonably designed to achieve the insurer's and its insurance intermediaries' compliance with this section. Under the system, the insurer shall do at least all of the following:

1. Maintain reasonable procedures to inform its insurance intermediaries of the requirements of this section and incorporate the requirements of this section into relevant insurance intermediary training manuals.

2. Establish standards for insurance intermediary product training and maintain reasonable procedures to require its insurance intermediaries to comply with the requirements of sub. (4m).

3. Provide product-specific training and training materials that explain all material features of its annuity products to its insurance intermediaries.

4. Maintain procedures for review of each recommendation before issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that a recommendation is suitable. An insurer's procedures may apply a screening system for the purpose of identifying selected transactions for additional review. An insurer's procedures may be accomplished electronically or through other means, including physical review. An electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.

5. Maintain reasonable procedures to detect recommendations that are not suitable, which may include confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters, and programs of internal monitoring. Nothing in this subdivision prevents an insurer from complying with this subdivision by applying sampling procedures or by confirming suitability information after issuance or delivery of the annuity, or both.

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

(b)

1. Nothing in this subsection restricts an insurer from contracting for the performance of a function required under par. (a), including maintenance of procedures. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under subs. (5) and (6), regardless of whether the insurer contracts for the performance of a function and regardless of the insurer's compliance with subd. 2.

2. An insurer's supervision system under par. (a) shall include supervision of any contractual performance under this subsection, including all of the following:

a. Monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed.

b. Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.

(c) An insurer is not required to include in its system of supervision an insurance intermediary's recommendations to consumers of products other than the annuities offered by the insurer.

(3m) Prohibited acts of intermediary. An insurance intermediary may not dissuade, or attempt to dissuade, a consumer from doing any of the following:

(a) Truthfully responding to an insurer's request for confirmation of suitability information.

(b) Filing a complaint.

(c) Cooperating with the investigation of a complaint.

(4) Financial Industry Regulatory Authority rules.

(a) Subject to pars. (b) and (c), sales made in compliance with FINRA requirements pertaining to suitability and supervision of annuity transactions satisfy the requirements under this section. Nothing in this subsection, however, limits the commissioner's ability to enforce this section, including conducting any investigation necessary for that enforcement.

(b) For par. (a) to apply, an insurer must do all of the following:

1. Monitor the FINRA member broker-dealer using information collected in the normal course of an insurer's business.

2. Provide to the FINRA member broker-dealer information and reports that are reasonably appropriate to assist the FINRA member broker-dealer to maintain its supervision system.

(c) This subsection applies to FINRA broker-dealer sales of annuities if the suitability and supervision are similar to those applied to variable annuity sales.

(4m) Insurance intermediary training.

(a) An insurance intermediary may not solicit the sale of an annuity product unless the insurance intermediary has adequate knowledge of the product to recommend the annuity and the insurance intermediary is in compliance with the insurer's standards for product training. An insurance intermediary may rely on insurer-provided product-specific training standards and materials to comply with this paragraph.

(b)

1.

a. An insurance intermediary who engages in the sale of annuity products shall complete a one-time training course approved by the commissioner and provided by an education provider approved by the commissioner.

b. Insurance intermediaries who hold a life insurance line of authority on May 1, 2011, and who desire to sell annuities must complete the requirements of this paragraph within 6 months after May 1, 2011. Individuals who obtain a life insurance line of authority on or after May 1, 2011, may not engage in the sale of annuities until they have completed the annuity training course required under this paragraph.

2. The minimum length of the training required under this paragraph shall be sufficient to qualify for at least 4 continuing education credits, but may be longer.

3. The training required under this paragraph shall include information on all of the following topics:

a. The types of annuities and various classifications of annuities.

b. Identification of the parties to an annuity.

c. How product-specific annuity contract features affect consumers.

d. The application of income taxation of qualified and non-qualified annuities.

e. The primary uses of annuities.

f. Appropriate sales practices and replacement and disclosure requirements.

4. Providers of annuity training courses intended to comply with this paragraph shall cover all of the topics listed under subd. 3. and may not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer's products. Additional topics may be offered in conjunction with and in addition to those listed under subd. 3.

5. A provider of an annuity training course intended to comply with this paragraph shall register as a continuing education provider in this state and comply with the rules and guidelines applicable to insurance intermediary continuing education courses as set forth in rules of the office governing intermediary continuing education requirements.

6. Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with rules of the office governing intermediary continuing education requirements.

7. Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with rules of the office governing intermediary continuing education requirements.

8. Satisfaction of the training requirements of another state that are substantially similar to the requirements of this paragraph satisfies the training requirements of this paragraph in this state.

9. An insurer shall verify that an insurance intermediary has completed the annuity training course required under this paragraph before allowing the intermediary to sell an annuity product for that insurer. An insurer may satisfy its responsibility under this subdivision by obtaining certificates of completion of the training course or obtaining reports provided by commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.

(5) Compliance; remedial measures. An insurer is responsible for compliance with this section. If a violation occurs, either because of the action or inaction of the insurer or its insurance intermediary, the commissioner may do any of the following:

(a) Order an insurer to take reasonably appropriate corrective action for any consumer harmed by a violation of this section by the insurer or the insurer's insurance intermediary.

(b) Order an insurance intermediary to take reasonably appropriate corrective action for any consumer harmed by a violation of this section by the insurance intermediary.

(c) Order a general agent or independent agency that employs or contracts with an insurance intermediary to sell, or solicit the sale of, annuities to consumers to take reasonably appropriate corrective action for any consumer harmed by a violation of this section by the insurance intermediary.

(d) Impose any appropriate penalties or sanctions.

(6) Penalties; mitigation.

(a) Any person who violates this section is subject to the penalties provided under s. 601.64, suspension or revocation of a license or certificate of authority, and an order under s. 601.41 (4).

(c) The commissioner may by rule provide for the reduction or elimination of a penalty under par. (a) for a violation of this section if corrective action is taken for the consumer promptly after the violation is discovered or the violation is not part of a pattern or practice.

(7) Record keeping.

(a) An insurer and an insurance intermediary, including a general agent and an independent agency, shall maintain, or be able to make available to the commissioner, records of the information collected from a consumer and other information used in making a recommendation that was the basis for an insurance transaction for 6 years after the insurance transaction is completed by the insurer, except as otherwise permitted by the commissioner by rule. An insurer may, but is not required to, maintain records on behalf of an insurance intermediary, including a general agent and an independent agency.

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

(8) Exemptions. This section does not apply to any of the following:

(a) Direct response solicitations in which no recommendation is made based on information collected from the consumer.

(b) Recommendations related to contracts used to fund any of the following:

1. An employee pension or welfare benefit plan that is covered by the federal Employee Retirement and Income Security Act.

2. A plan described in section 401 (a) or (k), 403 (b), or 408 (k) or (p) of the Internal Revenue Code, if the plan is established or maintained by an employer.

3. A government or church plan as defined in section 414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the Internal Revenue Code.

4. A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

5. A settlement or assumption of liability associated with personal injury litigation or any dispute or claim resolution process.

6. A formal prepaid funeral or burial contract.

History: 2003 a. 261; 2007 a. 168; 2009 a. 343; 2011 a. 260; 2015 a. 90.