More Annuity Suitability Rules Going into Effect This Summer

June 22, 2011

By Linda Koco
Contributing Editor, AnnuityNews

June 22, 2011 -- Five states and the District of Columbia will be implementing new annuity suitability regulations this summer.

All six have adopted rules that incorporate or closely follow the NAIC Suitability of Annuity Transactions Model Regulation (NAIC 2010). Now those rules are going into effect.

The newcomers are:  Rhode Island’s (Rule 12, effective June 1); Washington D.C. (Rule 8400, June 24); Oregon (Rule 836-080-017, July 1); Ohio (Rule 3901-6-13, July 1); and North Dakota (Section 26.1-34.2, August 1).

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that all 50 individual states to comply with the NAIC 2010 annuity suitability model by June 16, 2013.

Among other things, the model requires insurance companies to monitor annuity sales closely to ensure the product sold is good for the buyer. It also requires agents who sell annuities to take a one-time, four-hour class covering the different types of annuities, the tax implications and information that helps the customer make a good decision regarding the purchase.

Currently, 17 states and territories have laws similar to NAIC 2010, and six other states have NAIC 2010 efforts pending, according to the website of RegEd, an education and compliance firm based in Morrisville, NC.  See the RegEd list here.  Also, a map of state status on annuity suitability is available here .  

Altogether, about 28 states have indicated they are adopting NAIC 2010 or similar legislation ro regulation this year, according RegEd. In addition, several states have implemented annuity training requirements for producers licensed in their state, the firm says.

RegEd has partnered with The Insured Retirement Institute (IRI) to provide producers with the annuity training needed to fulfill the training requirements in the new annuity laws.

Positive reception

Jeannette Holman, a senior policy analyst the Oregon Department of Consumer and Business Services, wrote in a February Summary and Recommendation on the department’s website, that the staff had had expected to receive some resistance to the new suitability rules. There was “some resistance” to adopting changes earlier, in 2009, she pointed out.

“However, most of the feedback we have received has been positive and insurers and producers seem accepting so long as we stick closely to the NAIC model,” she wrote.

Holman had been the Hearing Officer for a department hearing on the on the rules and joined the staff recommendation to adopt the rules in February. Her department oversees the Oregon Insurance Division.

The state did consider making two additions to the model, she noted. But following discussion with the advisory committee, the staff decided to omit them.

As a result, the Oregon rules closely follow NAIC 2010. They build on standards that Oregon established in 2005 to deter unsuitable annuity sales, the department said.

Under the new Oregon rules:
  • Agents must consider such factors as the client’s age, life expectancy, family health, risk tolerance, overall financial situation and tax implications before selling an annuity.
  • Companies or agents must keep records of the client research that was done to determine whether a sale was appropriate. Records must be kept for three years after the sale.
  • Existing agents have six months from July 1 to take the newly required class, which cannot cover marketing or sales techniques. 
  • New agents licensed after Aug. 1 must undergo the training before selling annuities.

The Oregon department says that since 2009, it has revoked or suspended the licenses of 15 agents for selling annuities that consumed too much of a client’s income or were not likely to generate benefits until after the client’s death or were unsuitable for other reasons.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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