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December 5, 2024
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NAIC Best Interest Rule Takes Effect 1/1/2025 in CA
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The National Association of Insurance Commissioners’ updated Suitability
in Annuity Transactions Model Regulation, which adds a best interest standard of care for
annuity sales, takes effect January 1, 2025, in California.
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| Training Requirements |
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New NAIC Training Requirement—A
new state-approved training module (continuing education) must be taken through a state-approved vendor,
such as Quest CE, RegEd, Success CE, or Kaplan.
Access to approved vendors and information on training dates, times, and fees are available on the state insurance department websites.
Producers must submit proof of their completed training to LegacyContracting@legacynet.com.
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Additional General Annuity Training CE—As
states adopt the revised regulation, Producers doing business in those states will be
required to complete additional general annuity training CE.
The length of the additional training varies, depending on whether a Producer has completed
the previous four-hour training—those who
have are required to complete
a one-hour General Annuity Training CE,
while those who
haven’t
must complete a four-hour
General Annuity Training CE before selling or soliciting any annuities.
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| Producer Obligations |
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Producers must act with a heightened standard of care in the solicitation and sale of annuities,
which is satisfied by meeting four obligations: care, disclosure, conflict of interest, and documentation.
As part of this heightened standard of care,
Producers must not place their financial interest ahead of the consumer’s interest.
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Care—Producers must exercise reasonable diligence,
care, and skill when making a recommendation by:
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Knowing the customer’s financial situation, insurance needs, and financial objectives. |
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Understanding available recommendation options after making a reasonable inquiry. |
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Having a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objectives over the life of the product, as evaluated in light of the consumer profile information. |
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Communicating the basis or bases of the recommendation. |
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Producers must have a reasonable basis to believe the consumer would benefit
from certain features of the annuity and must be able to communicate the basis of the recommendation.
The Producer is not required to choose the product that simply has the lowest compensation
structure but must consider the contract as a whole, including product features, riders, and subaccounts at the time of purchase.
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If the sale involves a replacement contract, the Producer must consider:
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If the replacing product would substantially benefit the customer. |
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If the customer would incur surrender charges or lose benefits from their existing product. |
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If the customer would be subject to a new surrender charge period or increased fees from the new product. |
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Whether the customer has had another replacement in the last 60 months. |
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Disclosure—Under the new regulation,
all applicants must be provided with an “Insurance Agent (Producer) Disclosure
for Annuities” form. This new disclosure form, which must be submitted with all annuity applications,
discloses information related to the method by which the Producer is compensated,
the type of products the Producer is licensed to sell, and for how many insurance
companies the Producer is authorized to sell. To help Producers comply with this requirement,
Americo Financial Life and Annuity Insurance Company (Americo) and Ameritas
Life Insurance Corp.
(Ameritas) have provided a generic version of this disclosure form, which is available on
FireLight®.
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Conflict of Interest—Producers must identify and avoid,
or reasonably manage and disclose, any financial interest they have in the sale of the annuity
that a reasonable person would expect to influence the impartiality of a recommendation.
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Documentation—Producers must document any recommendation made to a customer and the basis for the recommendation.
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| Updated Suitability Forms and Point-of-Sale Disclosure and Documentation |
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Americo has updated its existing suitability form in states that are adopting the new regulation. The existing Americo suitability form should still be used in states that have not adopted the new regulation. |
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Ameritas and Integrity Life Insurance Company have
updated their existing suitability form for use in
all
states,
regardless of whether a state has adopted the new regulation or not.
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The existing “Replacement Comparison” form will be required for each replacement; however, the lookback time period has increased from 36 months to 60 months. |
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New point-of-sale documentation that must be completed and retained is outlined in the state regulation. |
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Applications signed prior to a state’s adoption date will be treated according to each carrier’s current requirements. Applications signed on or after a state’s adoption date must meet new state requirements prior to issue.
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| Additional Information |
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If you need help obtaining a form or have questions about compliance with the
Best Interest Rule,
please contact the
Legacy Marketing Group®
Marketing Field Support Team at 800-395-1053, Ext. 4002, or Suitability Help Desk, Ext. 5819.
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