N.M. Admin. Code § 13.9.20.9

Current through Register Vol. 35, No. 21, November 5, 2024

Section 13.9.20.9 - DUTIES OF INSURERS AND INSURANCE PRODUCERS

A.Best interest obligations. An insurance producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the insurance producer's or the insurer's financial interest ahead of the consumer's interest. An insurance producer has acted in the best interest of the consumer if the insurance producer has satisfied the following obligations regarding care, disclosure, conflict of interest and documentation as outlined in this rule.

(1)Care obligation. An insurance producer, in making a recommendation, shall exercise reasonable diligence, care and skill to:

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

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

(c) 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, after consideration of the information provided in the consumer profile information;

(d) communicate the basis or bases of the recommendation;

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

(f) consider the types of products the insurance producer is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the insurance producer or other possible alternative products or strategies available in the market at the time of the recommendation. An insurance producer shall be held to standards applicable to insurance producers with similar authority and licensure;

(g) consider the consumer profile information, characteristics of the insurer and product cost, rates, benefits and features in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs and financial objectives, while understanding that:

(i) the level of importance of each factor of the care obligation may vary depending on the facts and circumstances of a particular case; and

(ii) each factor shall not be considered in isolation.

(h) in the case of an exchange or replacement of an annuity, consider the whole transaction, which includes consideration of whether:

(i) 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;

(ii) the replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and

(iii) the consumer has had another annuity exchange or replacement and in particular, an exchange or replacement within the preceding 60 months.

(i) The care obligation requirements of this rule:

(i) include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit or other insurance-related features; apply to a particular annuity as a whole and to the underlying subaccounts to which funds are allocated at the time of annuity purchase or exchange and to riders and similar producer enhancements, if any;

(ii) do not require recommendation in all situations of an annuity with the lowest one-time or multiple occurrence compensation structure;

(iii) do not impose additional ongoing monitoring obligations on a producer, but such obligations may be separately owed under the terms of a fiduciary, consulting, investment advising or financial planning agreement between the producer and a consumer; and

(iv) do not create a fiduciary obligation or relationship.

(2)Disclosure obligation. Before or at the time of the recommendation or sale of an annuity, an insurance producer shall have a reasonable basis to believe the consumer has been informed of 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; any annual fees, potential charges for and features of riders or other options of the annuity limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components and market risk. These requirements are intended to supplement and not replace other disclosure requirements of this rule. Before the recommendation or sale of an annuity, an insurance producer shall prominently disclose to a consumer on a form substantially similar to Appendix A located at the end of this rule the following information:

(a) a description of the scope and terms of the insurance producer's relationship with the consumer and the role of the insurance producer in the transaction;

(b) an affirmative statement of whether the insurance producer is licensed and authorized to sell the following products:

(i) fixed annuities;

(ii) fixed indexed annuities;

(iii) variable annuities;

(iv) life insurance;

(v) mutual funds;

(vi) stocks and bonds; and

(vii) certificates of deposit;

(c) an affirmative statement describing the insurers for which the insurance producer is authorized, contracted or appointed, or otherwise able to sell insurance products, using the following descriptions:

(i) from one insurer;

(ii) from two or more insurers; or

(iii) from two or more insurers although primarily contracted with one insurer;

(d) a description of the sources and types of cash compensation and non-cash compensation to be received by the insurance producer, including whether the insurance producer is to be compensated for the sale of a recommended annuity by commission as part of a premium or other remuneration received from the insurer, intermediary or other insurance producer or by a fee as a result of a contract for advice or consulting services; and

(e) a notice of a consumer's or consumer's representative's right to request additional information regarding cash compensation that discloses:

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

(ii) 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, which may be stated as a range of amounts or percentages.

(3)Conflict of interest obligation. An insurance 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)Documentation obligation. At the time of recommendation or sale an insurance producer shall:

(a) make a written record of any recommendation and the basis for the recommendation subject to this rule;

(b) obtain a consumer signed statement on a form substantially similar to Appendix B located at the end of this rule documenting:

(i) a consumer's refusal to provide the consumer profile information, if any; and

(ii) a consumer's understanding of the ramification of not providing their consumer profile information or providing insufficient consumer profile information; and

(c) obtain a consumer signed statement on a form substantially similar to Appendix C acknowledging that the annuity transaction is not recommended if a consumer decides to enter into an annuity transaction that is not based on the insurance producer's recommendation.

B.Application of the best interest obligation. Any requirement applicable to an insurance producer under this section shall apply to every insurance 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 insurance producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational material, product wholesaling or other back-office product support and general supervision of an insurance producer do not, in and of themselves, constitute material control or influence.

C.Transactions not based on a recommendation.

(1) Except as provided in this rule, an insurance producer shall have no obligation to a consumer under the care obligation 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 materially inaccurate information provided by the consumer;

(c) a 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.

(2) An insurer's issuance of an annuity under the above conditions shall be reasonable under all circumstances known to the insurer at the time the annuity is issued.

D.Supervision system.

(1) Except as permitted in circumstances of transactions not based on a recommendation, an insurer may not issue an annuity recommendation to a consumer unless there is a reasonable basis to believe the annuity would effectively address the consumer's financial situation, insurance needs and financial objectives based on the consumer's profile information.

(2) An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its insurance producers' compliance with this rule, including, but not limited to developing and implementing the following:

(a) procedures to inform its insurance producers of the requirements of this rule and incorporate the requirements of this rule into relevant insurance producer training manuals;

(b) product-specific training and training materials which explain all material features of its annuity products and requirements of this rule to its insurance producers;

(c) procedures for the review of each recommendation prior to issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the consumer's financial situation, insurance needs and financial objectives. Such review procedures may apply a screening system to identify 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 only of those transactions identified for additional review by the selection criteria;

(d) reasonable procedures to detect recommendations that are not in compliance with this rule. This may include, but is not limited to, confirmation of the consumer's consumer profile information, systematic consumer surveys, insurance producer and consumer interviews, confirmation letters, insurance producer statements or attestations and programs of internal monitoring and sampling procedures and may be accomplished after the issuance or delivery of an annuity;

(e) reasonable procedures to assess, prior to or upon issuance or delivery of an annuity, whether an insurance producer has provided to the consumer the information required by this rule;

(f) reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information; and

(g) 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 time period. The requirements of this rule are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits or other employee benefits by employees as long as those benefits are not based upon the volume of sales of a specific annuity within a limited time period.

(3) An insurer shall annually provide a written report to senior management, including to 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.

(4) Nothing in this rule restricts an insurer from contracting for the performance of a function (including maintenance of procedures). An insurer shall take appropriate corrective action and may be subject to sanctions and penalties pursuant to Section 59A-1-18 NMSA 1978 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with this rule.

(5) An insurer's supervision system shall include supervision of contractual performance. This includes, but is not limited to the following:

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

(b) annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly preformed.

(6) An insurer is not required to include the following in its supervision system:

(a) an insurance producer's recommendations to a consumer of products other than the annuities offered by the insurer; and

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

E.Prohibited practices. Neither an insurance producer nor an insurer shall 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.

F.Safe harbor. Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements of this rule. This provision applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls and procedures that satisfy a comparable standard even if such standard would not otherwise apply to the product or recommendation at issue.

(1) This provision shall not limit the superintendent's ability to investigate and enforce the provisions of this rule.

(2) This provision shall not limit the insurer's obligation to comply with this rule, although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

(3) For this safe harbor to apply, an insurer shall:

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

(b) provide to the entity responsible for supervising the financial professional seeking to rely on this safe harbor, 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 such entity to maintain its supervision system.

N.M. Admin. Code § 13.9.20.9

Adopted by New Mexico Register, Volume XXXIII, Issue 05, March 8, 2022, eff. 10/1/2022