Annuities. An annuity is a contract sold by an insurer which exchanges present contributions for future income payments. In Washington State, fixed rate annuities are regulated by the Office of the Insurance Commissioner (OIC), and variable rate annuities are regulated by the Department of Financial Institutions.
When selling an annuity to a consumer, an insurance producer must comply with certain requirements in recommending and selling the annuity such as having reasonable grounds to believe the recommendation is suitable, making reasonable efforts to obtain relevant information from the client, and making recommendations that are reasonable considering all the circumstances known to the insurance producer.
Best Interest Standard. The U.S. Securities and Exchange Commission (SEC), in June 2019, finalized a regulation best interest (Reg. BI) which established a best interest standard of conduct for broker-dealers beyond existing requirements applied to variable annuities. To satisfy Reg. BI, the broker-dealer complies with four specified component obligations: disclosure, care, conflict of interest, and compliance.
In February 2020, the National Association of Insurance Commissioners (NAIC) approved revisions to a model act on annuities—Model #275, that required agents and insurance carriers to act with reasonable diligence, care, and skill in making annuity recommendations to customers.
Insurance producers and insurers who sell annuities must act in the best interest of the consumer. The best interest of the consumer is established based on the circumstances known at the time that the recommendation is made, without placing the producer's, or the insurer's, financial interest ahead of the consumer's interest.
When selling annuities, a producer has satisfied their obligations to the consumer's best interest with the following:
Recommendation and sales of annuities made in compliance with comparable standards, such as applicable federal rules pertaining to best interest obligations and supervision of annuity recommendations and sales, satisfy this requirement. Producers are not required to consider other products available in the market other than the products that they sell. The best interest standard does not create a fiduciary obligation or relationship.
Reasonable efforts to obtain consumer profile information from the consumer must be made. When exchanging or replacing an annuity the producer must consider the whole transaction, such as the inherent costs and benefits and any recent annuity transactions, when providing recommendations.
Prior to the recommendation or sale, the producer must disclose certain information to the consumer on OIC's website. Records of the sale or recommendation must be maintained that accurately reproduces the actual document between the producer and consumer.
There is no obligation to the consumer by a producer if:
If a violation occurs, OIC may take appropriate corrective action for any consumer harmed.
Nothing shall be construed to create or imply a private cause of action or subject the producer to civil liability under the best interest standard of care or under fiduciary standards of conduct.
PRO: This bill is about valuing retirement options, protecting consumers as they seek help, narrowing the wealth gap, and creating access that works best for working families. It requires planners to let consumers know if they have a conflict of interest.
ACLI is delighted to be supporting this bill with the Office of the Insurance Commissioner. Since this bill was heard in January, 33 states have adopted this model. The disclosures ensure the agent is working in the consumer's best interest.