8403.1In recommending the purchase or exchange of an annuity to a consumer that results in an insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer relative to his or her investments and other insurance products, and financial situation and needs, including the consumer's suitability information, and that there is a reasonable basis to believe all of the following:
(a) The consumer has been reasonably informed of the various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, potential charges for and features of riders, limitations on interest returns, insurance and investment components and market risk;(b) The consumer would benefit from certain features of the annuity, such as tax-deferred growth, annuitization or death or living benefit;(c) The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or exchange of the annuity, and riders and similar product enhancements, if any, are suitable (and in the case of an exchange or replacement, the transaction as a whole is suitable) for the particular consumer based on his or her suitability information; and(d) In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable including taking into consideration whether: (1) 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 subject to increased fees, investment advisory fees or charges for riders and similar product enhancements;(2) The consumer would benefit from product enhancements and improvements; and(3) The consumer has had another annuity exchange or replacement within the preceding thirty-six (36) months.8403.2Prior to the execution of a purchase, exchange or replacement of an annuity resulting from a recommendation, an insurance producer, or an insurer where no producer is involved, shall make reasonable efforts to obtain the consumer's suitability information.
8403.3Except as permitted under subsections 8403.4 and 8403.5, an insurer shall not issue an annuity recommendation to a consumer unless there is a reasonable basis to believe the annuity is suitable based on the consumer's suitability information.
8403.4Except as provided under subsection 8403.5 of this section, neither an insurance producer, nor an insurer, shall have any obligation to a consumer under section 8403.1 or 8403.3 related to any annuity transaction if:
(a) No recommendation is made;(b) A recommendation was made and was later found to have been prepared based on inaccurate material information provided by the consumer;(c) A consumer refuses to provide relevant suitability 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 insurer or the insurance producer.8403.5An insurer's issuance of an annuity subject to subsection 8403.4 shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.
8403.6An insurance producer, or where no insurance producer is involved, the insurer or its responsible representative, shall at the time of sale:
(a) Make a record of any recommendation subject to subsection 8403.1;(b) Obtain a customer signed statement documenting a customer's refusal to provide suitability information, if any; and(c) Obtain a customer signed statement acknowledging that an annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the insurance producer's or insurer's recommendation.8403.7An insurer shall establish a system of supervision that is reasonably designed to comply with an insurer and its producer's obligations under this chapter, including, but not limited to, the following:
(a) The insurer shall maintain reasonable procedures to inform its insurance producers of the requirements of this chapter and shall incorporate the requirements of this chapter into the relevant insurer producer policies and training manuals;(b) The insurer shall establish standards for insurance producer product training and shall maintain reasonable procedures to require its insurance producers to comply with the requirements of section 8404 of this chapter;(c) The insurer shall provide product-specific training and training materials which explain to its insurance producers all material features of its annuity products;(d) The insurer shall maintain procedures for review of each recommendation of an annuity that are designed to ensure that there are reasonable bases to determine that a recommendation is suitable. Such review procedures may include a screening system for the purpose of identifying selected transactions for additional review, and may be accomplished electronically or through other means, including, but not limited to, physical review. Such an electronic or other system may be designed to require additional review of those transactions deemed to have met certain selection criteria;(e) The insurer shall maintain reasonable procedure to detect recommendations that are not suitable. This may include, but is not limited to, confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters and programs of internal monitoring. Nothing in this paragraph prevents an insurer from complying with this subsection by applying sampling procedures or by confirming suitability information after the issuance or delivery of the annuity; and(f) The insurer shall annually provide a report to senior management, including the senior manager responsible for audit functions, which details 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.8403.8Nothing in this section shall restrict an insurer from contracting with third-parties to perform a function (including maintenance of procedures) required under subsection 8403.7.
An insurer is responsible for taking appropriate corrective action and may be subject to the sanctions and penalties in section 8306 of this chapter regardless of whether the insurer contracts for performance of a function or otherwise complies with paragraph (a) of this subsection.
(a) An insurer's system of supervision under subsection 8403.7 shall include the supervision of contractual performance under this section. This includes, but is not limited to, the following: (1) Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed; and(2) Annually obtaining a certification from a senior manager who has responsibility for the contracted function stating that the manager has a reasonable basis to represent, and does represent, that the function is being properly performed.(b) An insurer is not required to include in its system of supervision an insurance producer's recommendations to consumers of products other than the annuities offered by the insurer.8403.9An insurance producer shall not dissuade, or attempt to dissuade, a consumer from:
(a) Truthfully responding to an insurer's request for confirmation of suitability information;(b) Filing a complaint; or(c) Cooperating with the investigation of a complaint.8403.10Sales made in compliance with FINRA requirements pertaining to suitability and supervision of annuity transactions shall satisfy the requirements under this chapter. This subsection applies to FINRA broker-dealer sales of variable annuities and fixed annuities if the suitability and supervision procedures are similar to those applied to variable annuity sales. However, nothing in this subsection shall limit the Commissioner's ability to enforce the provisions of this chapter.
8403.11For subsection 8403.10 of this section to apply, an insurer shall:
(a) Monitor the FINRA member broker-dealer using information collected in the normal course of an insurer's business; and(b) Provide to the FINRA member broker-dealer information and reports that are reasonably appropriate to assist in maintaining the FINRA member's broker-dealer system of supervision.D.C. Mun. Regs. tit. 26, r. 26-A8403
Source: Notice of Final Rulemaking published at 57 DCR 12209, 12210 (December 24, 2010)Authority: The Commissioner of the Department of Insurance, Securities, and Banking, pursuant to the authority set forth in section 125 of the Insurance Trade and Economic Development Amendment Act of 2000, effective April 3, 2001 (D.C. Law 13-265; D.C. Official Code § 31-2231.25 (2009 Repl.)).