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IBA West joined leading life insurance industry organizations in supporting proposed new regulations governing the suitability of annuity sales to seniors, at a California Department of Insurance (CDI) rulemaking in San Francisco on Monday, April 25.
The regulations, based on model provisions adopted by the National Association of Insurance Commissioners, would require insurers to adopt and producers to comply with, new minimum standards when recommending that seniors purchase, exchange or replace annuity products.
If adopted, the regulations would require producers (or the insurer, if no producer is involved) to have a “reasonable basis” for believing, before selling an annuity product they had recommended: 1) that the senior consumer is reasonably informed of the annuity’s features, including surrender periods and charges, tax penalties, fees and investment risks; 2) that the consumer “would benefit from certain features of the annuity;” and 3) that the annuity as a whole is suitable for the consumer based on “suitability information” they have provided to the producer or insurer.
Producers would be required to make reasonable attempts to obtain “suitability information” from the consumer, which would be defined to include data such as the age, income, financial needs, financial experience and objectives, intended use, financial time horizon, other existing assets, liquidity needs, liquid net worth, risk tolerance, and tax status of consumers aged 65 or older.
The determination of reasonable suitability, summarized above, would be required only when a producer or insurer is both recommending the purchase or exchange of a particular annuity product, and then also selling it to the senior consumer.
The regulations would also require that insurers adopt supervisory systems to ensure producer compliance; that producers complete eight hours of prelicensing education and four hours of continuing education (every two years) on annuity curricula; and that records of annuity transactions be maintained for at least five years.
IBA West General Counsel Steve Young testified at the hearing, urging CDI to make a handful of changes in order to ensure the regulations complied with California Government Code requirements for internal consistency and lack of ambiguity.
CDI will analyze and respond to all comments it received at the hearing, and is expected to submit a final regulatory proposal to the California Office of Administrative Law in a few weeks. The regujlations would take effect only after final approval by OAL and filing with the California Secretary of State.
For more information, including CDI’s rationale for the regulations and information on how to review the text of the proposed regulations, click HERE.