3 Alaska Admin. Code § 26.775

Current through September 25, 2024

Section 3 AAC 26.775 - Duties of an insurance producer and an insurer

(a) When making a recommendation of an annuity, a producer shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer's or the insurer's financial interest ahead of the consumer's interest. A producer has acted in the best interest of the consumer if the producer has satisfied the following obligations regarding care, disclosure, conflict of interest, and documentation:

(1) the producer, in making a recommendation,

(A) shall exercise reasonable diligence, care, and skill to

(i) know the consumer's financial situation, insurance needs, and financial objectives;

(ii) understand the available recommendation options after making a reasonable inquiry into options available to the producer;

(iii) have 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;

(iv) communicate the basis or bases of the recommendation; and

(v) make reasonable efforts to obtain consumer profile information from the consumer before the recommendation of an annuity;

(B) complies with the requirements of (A) of this paragraph as follows:

(i) the producer shall consider the types of product that the producer is authorized to recommend or sell that address the consumer's financial situation, insurance needs, and financial objectives; the producer is not required to analyze or consider any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation; a producer shall be held to the standards applicable to producers with similar authority and licensure;

(ii) the requirements of (A) of this paragraph do not create a fiduciary obligation or relationship and only create a regulatory obligation as established in 3 AAC 26.770 - 3 AAC 26.789;

(iii) the consumer profile information, characteristics of the insurer, and product costs, rates, benefits, and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs, and financial objectives, but the level of importance of each factor under the care obligation required under (A) of this paragraph may vary depending on the facts and circumstances of a particular case; however, each factor may not be considered in isolation;

(iv) the requirements under (A) of this paragraph include having a reasonable basis to believe that the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features;

(v) the requirements under (A) of this paragraph apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any;

(vi) the requirements under (A) of this paragraph do not mean that the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended;

(vii) the requirements under (A) of this paragraph do not mean that the producer has ongoing monitoring obligations under the care obligation under (A) of this paragraph, although those obligations may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the producer;

(viii) in the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction; the requirements of this sub-subparagraph include taking into consideration whether the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living, or other contractual benefits, or be subjected to increased fees, investment advisory fees, or charges for riders and similar product enhancements, whether the replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product, and whether the consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months;

(ix) nothing in 3 AAC 26.770 - 3 AAC 26.789 requires a producer to obtain any license other than a producer license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including any securities license, in order to fulfill those obligations contained in this section, if the producer does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses;

(2) before the recommendation or sale of an annuity,

(A) the producer shall furnish the required information on Form 1, made part of this section in substantially the following form:

FORM 1

INSURANCE AGENT (PRODUCER) DISCLOSURE FOR ANNUITIES Do Not Sign Unless You Have Read and Understand the Information in this Form

Date: _________________________

INSURANCE AGENT (PRODUCER) INFORMATION ("Me", "I", "My")

First Name:______________________ Last Name:______________________

Business or Agency Name:______________________ Website:__________________

Business Mailing Address: _______________________________________________

Business Telephone Number:______________________

Electronic Mail Address:_____

National Producer Number in Alaska:__

CUSTOMER INFORMATION ("You", "Your")

First Name:______________________ Last Name:______________________

What Types of Products Can I Sell You?

I am licensed to sell annuities to You in accordance with state law. If I recommend that You buy an annuity, it means 1 believe that it effectively meets Your financial situation, insurance needs, and financial objectives. Other financial products, such as life insurance or stocks, bonds, and mutual funds, also may meet Your needs. I offer the following products:

______Fixed or Fixed Indexed Annuities

_______Variable Annuities

_______Life Insurance

I need a separate license to provide advice about or to sell non-insurance financial products. I have checked below any non-insurance financial products that I am licensed and authorized to provide advice about or to sell.

______Mutual Funds

______Stocks/Bonds

_______Certificates of Deposits

Whose Annuities Can I Sell to You? I am authorized to sell:

_______Annuities from only One Insurer

______Annuities from Two or More Insurers

_______Annuities from Two or More Insurers although I primarily sell annuities from:

How I'm Paid for My Work:

It's important for You to understand how I'm paid for my work.

Depending on the particular annuity You purchase, I may be paid a commission or a fee.

Commissions are generally paid to Me by the insurance company while fees are generally paid to Me by the consumer. If You have questions about how I'm paid, please ask Me.

Depending on the particular annuity You buy, I will or may be paid cash compensation as follows:

_______ Commission, which is usually paid by the insurance company or other sources, describe:

_______

Fees (such as a fixed amount, an hourly rate, or a percentage of your payment), which are usually paid directly by the customer.

_______Other (Describe):________________________________________________________

If You have questions about the above compensation 1 will be paid for this transaction, please ask me.

I may also receive other indirect compensation resulting from this transaction (sometimes called "non-cash" compensation), such as health or retirement benefits, office rent and support, or other incentives from the insurance company or other sources. By signing below. You acknowledge that You have read and understand the information provided to You in this document.

_______________

Customer Signature

________________

Date

________________

Agent (Producer) Signature

(B) upon request of the consumer or the consumer's designated representative, the producer shall

(i) disclose a reasonable estimate of the amount of cash compensation to be received by the producer; the estimate may be stated as a range of amounts or percentages; and

(ii) disclose whether the cash compensation is a one-time or multiple-occurrence amount, and if a multiple-occurrence amount, the frequency and amount of the occurrence; the frequency and amount may be stated as a range of amounts or percentages;

(C) a producer must have a reasonable basis to believe, before or at the time of the recommendation or sale of an annuity, that the consumer has been informed of the features of the annuity, such as

(i) the potential surrender period and surrender charge;

(ii) the potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity;

(iii) mortality and expense fees;

(iv) investment advisory fees;

(v) any annual fees;

(vi) potential charges for and features of riders or other options of the annuity;

(vii) limitations on interest returns;

(viii) potential changes in non-guaranteed elements of the annuity;

(ix) insurance and investment components; and

(x) market risk;

(3) a producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest;

(4) a producer shall, at the time of recommendation or sale,

(A) make a written record of any recommendation and the basis for the recommendation subject to 3 AAC 26.770 - 3 AAC 26.789;

(B) obtain, if the consumer refuses to provide the consumer profile information or provides only limited information, a consumer signed statement on Form 2, made a part of this section in substantially the following form;

FORM 2

CONSUMER REFUSAL TO PROVIDE INFORMATION Do Not Sign Unless You Have Read and Understand the Information in this Form.

Why are You being given this form?

You are buying a financial product-an annuity. To recommend a product that effectively meets Your needs, objectives and situation, the agent broker, or company needs information about You, Your financial situation. Insurance needs and financial objectives.

If you sign this form, it means You have not given the agent, broker, or company some or all the information needed to decide if the annuity effectively meets Your needs, objectives, and situation. You may lose protections under the Insurance Code of Alaska if You sign this form or provide inaccurate information.

Statement of Purchaser:

___________I refuse to provide this information at this time.

__________I have chosen to provide LIMITED information at this time.

___________

Customer Signature

____________

Date

and

(C) obtain a consumer signed statement on Form 3, made a part of this section in substantially the following form:

FORM 3

Consumer Decision to Purchase an Annuity NOT Based on a Recommendation. Do Not Sign This Form Unless You Have Read and Understand It.

Why are You being given this form?

You are buying a financial product-an annuity.

To recommend a product that effectively meets your needs, objectives and situation, the agent, broker, or company has the responsibility to learn about You, your financial situation. Insurance needs and financial objectives.

If you sign this form, it means You know that you're buying an annuity that was not recommended.

Statement of Purchaser:

I understand that I am buying an annuity, but the agent, broker, or company did not recommend that I buy it. If I buy it without a recommendation, I understand I may lose protections under the Insurance Code of Alaska.

_____________

Customer Signature

_____________

Date

_____________

Agent/Producer

_____________

Signature

_____________

Date

(5) any requirement applicable to a producer under this subsection applies to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer; activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a producer do not in and of themselves constitute material control or influence.

(b) For the purposes of an annuity subject to (2) of this subsection,

(1) a producer, except as provided in (2) of this subsection, has no obligation to a consumer under (a)(1) of this section related to any annuity transaction if

(A) no recommendation is made;

(B) a recommendation is made and is later found to have been prepared based on materially inaccurate information provided by the consumer;

(C) the consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended; or

(D) a consumer decides to enter into an annuity transaction that is not based on a recommendation of the producer; and

(2) an insurer's issuance of an annuity subject to (1) of this subsection is reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.

(c) Except as provided under (b) of this section, an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe that the annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives, based on the consumer's consumer profile information, as follows:

(1) an insurer shall establish and maintain a supervision system that is reasonably designed to achieve compliance with 3 AAC 26.770 - 3 AAC 26.789, that includes the insurer

(A) establishing and maintaining procedures to inform its producers of the requirements of 3 AAC 26.770 - 3 AAC 26.789;

(B) incorporating the requirements of 3 AAC 26.770 - 3 AAC 26.789 into relevant producer training manuals;

(C) establishing and maintaining standards for producer product training and maintaining reasonable procedures that require producers to comply with 3 AAC 26.778;

(D) providing product-specific training and training materials that explain the material features of the insurer's annuity products to its producers;

(E) establishing and maintaining procedures for the review of each recommendation before the issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives; review procedures may apply a screening system for identifying selected transactions for additional review and may be accomplished electronically or through other means, including physical means; such an electronic or other system may be designed to require additional review of only those transactions identified for additional review by the selection criteria;

(F) establishing and maintaining reasonable procedures to detect recommendations that are not in compliance with (a), (b), (d), and (e) of this section; this may include confirmation of the consumer's consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements and attestations, and programs of internal monitoring; nothing in this subparagraph prevents an insurer from complying with this subparagraph by applying sampling procedures, or by confirming the consumer profile information or other required information under this section after issuance or delivery of the annuity;

(G) establishing and maintaining reasonable procedures to assess, before or upon issuance or delivery of an annuity, whether a producer has provided to the consumer the information required to be provided under this section;

(H) establishing and maintaining reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information;

(I) establishing and maintaining reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific annuities within a limited period of time; nothing in this subparagraph prohibits the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees, if those benefits are not based upon the volume of sales of a specific annuity within a limited period of time; and

(J) annually providing a written report to its senior management, including the senior manager responsible for audit functions; the report must detail a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any;

(2) nothing in this subsection restricts an insurer from contracting for the performance of any of the functions, including maintenance of procedures, required under this section; an insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under 3 AAC 26.785 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with (3) of this subsection;

(3) an insurer's supervision system under this subsection must include supervision of contractual performance under this subsection; this includes the following:

(A) monitoring and conducting audits, as appropriate, to assure that the contracted function is properly performed; and

(B) annually obtaining written certification from a senior manager with responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the contracted function is properly performed; and

(4) an insurer is not required to include in its supervision system

(A) a producer's recommendation to consumers of products other than the annuity products offered by the insurer; or

(B) consideration of or comparison to options available to the producer or compensation relating to those options other than annuities or other products offered by the insurer.

(d) A producer or an insurer may not dissuade, or attempt to dissuade, a consumer from

(1) truthfully responding to an insurer's request for confirmation of the consumer profile information;

(2) filing a complaint; or

(3) cooperating with the investigation of a complaint.

(e) Recommendations and sales of annuities made in compliance with comparable standards satisfy the requirements of 3 AAC 26.770 - 3 AAC 26.789, subject to the following:

(1) this subsection applies to recommendations and sales of annuities made by professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if the standard would not otherwise apply to the product or recommendation at issue; nothing in this subsection limits the director's ability to investigate and enforce the provisions of 3 AAC 26.770 - 3 AAC.26.789;

(2) nothing in (1) of this subsection limits the insurer's obligation to comply with the care obligation in (c)(1) of this section, although the insurer may base its analysis on Information received from either the financial professional or the entity supervising the financial professional;

(3) for (1) of this subsection to apply, an insurer shall

(A) monitor the relevant conduct of the financial professional seeking to rely on (1) of this subsection or the entity responsible for supervising the financial professional, such as the financial professional's broker-dealer or an investment adviser registered under federal or state securities laws, using information collected in the normal course of the insurer's business; and

(B) provide to the entity responsible for supervising the financial professional seeking to rely on (1) of this subsection, such as the financial professional's broker-dealer or investment adviser registered under federal or state securities laws, information and reports that are reasonably appropriate to assist the entity to maintain its supervision system;

(4) for purposes of this subsection, "financial professional" means a producer that is regulated and acting as

(A) a broker-dealer registered under federal or state securities laws or a registered representative of a broker-dealer;

(B) an investment adviser registered under federal or state securities laws or an investment adviser representative associated with the federal or state registered investment adviser; or

(C) a plan fiduciary under 29 U.S.C. 1002(21) (sec. 3(21) Employee Retirement Income Security Act of 1974 (ERISA)) or fiduciary under 26 U.S.C. 4975(e)(3) (Internal Revenue Code) or any amendments or successor statutes to those provisions;

(5) for purposes of this subsection, "comparable standards" means

(A) with respect to broker-dealers and registered representatives of broker-dealers, applicable SEC and FINRA rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including SEC Regulation Best Interest (Reg BI) and any amendments or successor regulations to those provisions;

(B) with respect to investment advisers registered under federal or state securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on those investment advisers or investment adviser representatives by contract or under 15 U.S.C. 80b-1- 80b-21 (Investment Advisers Act of 1940), including the Form ADV and interpretations; and

(C) with respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to that status under 29 U.S.C. 1001- 1461 (Employee Retirement Income Security Act of 1974 (ERISA)) or 26 U. S.C. 4975 (Internal Revenue Code) and any amendments or successor statutes to those provisions.

3 AAC 26.775

Eff. 7/25/2008, Register 187; am 10/16/2011, Register 200; am 11/23/2022, Register 244, January 2023

Authority:AS 21.06.090

AS 21.36.020

AS 21.36.030

AS 21.36.040

AS 21.36.050

AS 21.36.900