Section 3.26.775. Duties of an insurance producer and an insurer.

	(a)  In recommending to a consumer the purchase or exchange of an annuity contract that results in an insurance transaction or series of insurance transactions, an insurance producer or an insurer, if no insurance producer is involved, must have reasonable grounds for believing that the recommendation is suitable for the consumer, based on the facts disclosed by the consumer as to the consumer's financial situation, needs, investments, and other insurance products, including the consumer's suitability information, and must have a reasonable basis to believe that   
		(1) the consumer has been reasonably informed of the features of the annuity; the requirements of this paragraph supplement, and do not replace, requirements for the receipt of the disclosure document and buyer's guide, in compliance with 3 AAC 26.755; features of the annuity of which a consumer must be reasonably informed include, if applicable,  
			(A) the potential surrender period and surrender charge;  
			(B) the potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity;  
			(C) the mortality and expense fees;  
			(D) the investment advisory fees;  
			(E) the potential charges for and features of riders;  
			(F) the limitations on interest returns;  
			(G) the insurance and investment components; and  
			(H) the market risk;  
		(2) the consumer would benefit from features of the annuity, including, as applicable,  
			(A) tax-deferred growth;  
			(B) annuitization; and  
			(C) death or living benefit;  
		(3) 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 are suitable, or that, in the case of an exchange or replacement, the transaction as a whole is suitable;  
		(4) in the case of an exchange or replacement of an annuity, the exchange or replacement is suitable, taking into consideration whether   
			(A) the consumer will  
				(i) incur a surrender charge;  
				(ii) be subject to the commencement of a new surrender period;  
				(iii) lose existing benefits; or  
				(iv) be subject to increased fees, investment advisory fees, or charges for riders or product enhancements;  
			(B) the consumer will benefit from product enhancements and improvements; and  
			(C) the consumer has had another exchange or replacement, particularly within the previous 36 months.  
	(b)  Before the execution of a purchase, exchange, or replacement of an annuity contract resulting from a recommendation, an insurance producer or an insurer, if no insurance producer is involved, must make an effort to obtain and evaluate the accuracy and completeness of the consumer's suitability information.  
	(c)  Except as provided under (d) of this section, an insurer may not issue an annuity recommended to a consumer unless the insurer has a reasonable basis to believe that the annuity is suitable for the consumer based on the consumer's suitability information.  
	(d)  Except as provided under (e) of this section, an insurance producer or an insurer is considered to have met the requirements of (a) and (c) of this section relating to an annuity transaction, if  
		(1) no recommendation is made to the consumer;  
		(2) a recommendation is made and is later found to have been prepared based on materially inaccurate information provided by the consumer;  
		(3) the consumer refuses to provide relevant suitability information and the insurance producer or insurer does not recommend an annuity transaction; or  
		(4) a consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurance producer or insurer.  
	(e)  The circumstances actually known to the insurer at the time the annuity is issued shall be applied to determine if an insurer's issuance of an annuity subject to (d) of this section was reasonable.  
	(f)  At the time of sale, an insurance producer or insurer, if no insurance producer is involved, shall  
		(1) prepare a record of a recommendation made under the requirements of (a) of this section;  
		(2) obtain a statement signed by the consumer that documents the consumer's refusal to provide suitability information, if applicable; and  
		(3) obtain a statement signed by the consumer that acknowledges that the annuity transaction is not recommended if the consumer decides to enter into an annuity transaction that is not based on the insurance producer's or insurer's recommendation.  
	(g)  An insurer shall establish and maintain a supervision system that is designed to achieve the insurer's and its insurance producers' compliance with 3 AAC 26.770 - 3 AAC 26.789 that includes the insurer  
		(1) maintaining procedures to inform its insurance producers of the requirements of 3 AAC 26.770 - 3 AAC 26.789;  
		(2) incorporating the requirements of 3 AAC 26.770 - 3 AAC 26.789 into relevant insurance producer training manuals;  
		(3) establishing standards for insurance producer product training and maintaining reasonable procedures that require insurance producers to comply with 3 AAC 26.778;  
		(4) providing product-specific training and training materials that explain the material features of the insurer's annuity products to its insurance producers;  
		(5) maintaining procedures for review of each recommendation before the issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that a recommendation is suitable; for purposes of this paragraph, review procedures designed to ensure a reasonable basis include review procedures that apply a screening system for identifying selected transactions for additional review and that are designed to require additional review of only those transactions identified by  
			(A) electronic means;  
			(B) physical means; or  
			(C) other means;  
		(6) maintaining procedures to detect recommendations that are not suitable; for purposes of this paragraph, procedures to detect recommendations that are not suitable include any of the following:  
			(A) confirmation of consumer suitability information;  
			(B) systematic customer surveys;  
			(C) interviews;  
			(D) confirmation letters;  
			(E) programs of internal monitoring; and  
		(7) annually providing a report to its senior management, including the senior manager responsible for audit functions, with the report detailing a review with appropriate testing designed to assist in determining  
			(A) the effectiveness of the supervision system;  
			(B) the exceptions found; and  
			(C) the corrective action taken or recommended, if any.  
	(h)  An insurer may comply with the requirements of (g)(6) of this section by using sampling procedures or by confirming suitability information after the issuance or delivery of the annuity.  
	(i)  An insurer may contract with a third party to perform any of the functions, including maintenance of procedures, required under (g) of this section. An insurer is responsible for taking appropriate corrective action to ensure that the supervision system under (g) of this section is maintained and properly performed.  
	(j)  An insurer's supervision system required under (g) of this section must include supervision of the performance of a third party under (i) of this section by  
		(1) monitoring and conducting audits as appropriate to assure that the contracted function is properly performed; and  
		(2) annually obtaining written certification from a senior manager with responsibility for the contracted function that represents that the contracted function is properly performed.  
	(k)  An insurer is not required to include in its supervision system an insurance producer's recommendation to a consumer of products other than the annuity products offered by the insurer.  
	(l)  An insurance producer may not dissuade, or attempt to dissuade, a consumer from  
		(1) truthfully responding to an insurer's request for confirmation of suitability information;  
		(2) filing a complaint; or  
		(3) cooperating with the investigation of a complaint.  
	(m)  If the director determines that a sale is made in compliance with Financial Industry Regulatory Authority (FINRA) requirements pertaining to suitability and supervision of annuity transactions, the sale satisfies the requirements of 3 AAC 26.770 - 3 AAC 26.789. This subsection applies to a Financial Industry Regulatory Authority broker-dealer sale of a variable annuity and a fixed annuity if the requirements pertaining to suitability and supervision of a fixed annuity are similar to those applied to a variable annuity sale. Nothing in this subsection limits the director's ability to investigate or enforce the provisions of 3 AAC 26.770 - 3 AAC 26.789. For this subsection to apply, an insurer must  
		(1) monitor the Financial Industry Regulatory Authority broker-dealer using information collected in the normal course of the insurer's business; and  
		(2) provide to the Financial Industry Regulatory Authority broker-dealer information and reports that are appropriate to assist the Financial Industry Regulatory Authority broker-dealer to maintain its supervision system.  

Authorities

21.06.090;21.36.020;21.36.030;21.36.040;21.36.050;21.36.900;01.05.031;21.36.150;44.62.125

Notes

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 Editor's note: In 2010 the revisor of statutes, acting under AS 01.05.031, renumbered former AS 21.36.150 as AS 21.36.900. As of Register 196 (January 2011), the regulations attorney made a conforming technical revision under AS 44.62.125(b)(6), to the authority citation that follows 3 AAC 26.775, so that the citation to former AS 21.36.150 now refers to the renumbered statute, AS 21.36.900.

History

Eff. 7/25/2008, Register 187; am 10/16/2011, Register 200

References

3.26.775