Fiduciary/Best Interest Development
- In February of 2020, the NAIC released its amended model regulation concerning suitability in annuity transactions.
- The purpose of the regulation is to require producers to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed.
- The regulation requires a producer, when recommending an annuity, to act in the consumer’s best interest, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s. Further, the regulation requires that the producer make a written record of the recommendation and the basis for it.
- Prior to recommending the annuity, the producer must disclose: (1) the scope and terms of the producer’s relationship with the consumer; (2) identify the products it is licensed and authorized to sell; (3) the insurers for whom it is authorized to sell; (4) a description of the sources and types of compensation to be received by the producer; and (5) notice of the consumer’s right to request additional information regarding the compensation.
- Also, the producer must identify and avoid or reasonably manage and disclose material conflicts of interest.
- The regulation requires that insurers establish a supervision system “reasonably designed” to achieve its compliance with the regulation. Should an insurer violate this regulation, it would need to take corrective action and could be subject to “appropriate penalties and sanctions”.
- This regulation does not create a private right of action.
Suitability in Annuity Transactions Model Regulation