§ 41-1940A — ANNUITY CONSUMER PROTECTIONS — SUITABILITY DUTIES

Idaho § 41-1940A

• Jurisdiction: Idaho
• Title 41: INSURANCE
• Ch. 19: LIFE INSURANCE POLICIES AND ANNUITY CONTRACTS

Text

(1) This section through section 41-1940E, Idaho Code, shall apply to any sale or recommendation of an annuity.
(a) The purpose of these sections is to require producers, as defined in the annuity consumer protections act, to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed.
(b) Nothing in the annuity consumer protections act shall be construed to subject a producer to civil liability under the best interest standard of care outlined in this section or under standards governing the conduct of a fiduciary or a fiduciary relationship.
(2) Unless otherwise specifically included, this section through section 41-1940E, Idaho Code, shall not apply to transactions involving:
(a) Contracts excluded by section 41-1940 (3), Idaho Code; or
(b) Direct response solicitations where there is no recommendation based on information collected from the consumer pursuant to this section.
(3) Best interest obligations. A 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 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 he has satisfied the following obligations regarding care, disclosure, conflict of interest, and documentation:
(a) Care obligation. The producer, in making a recommendation, 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; and
(iv) Communicate the basis or bases of the recommendation.
(b) The requirements under paragraph (a) of this subsection include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.
(c) The requirements under paragraph (a) of this subsection require a producer to consider the types of products the 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 producer or other possible alternative products or strategies available in the market at the time of the recommendation. Producers shall be held to standards applicable to producers with similar authority and licensure.
(d) The requirements under this subsection do not create a fiduciary obligation or relationship and create only a regulatory obligation as established in this section.
(e) 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 of this subsection may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.
(f) The requirements under paragraph (a) of this subsection 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.
(g) The requirements under paragraph (a) of this subsection 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 to riders and similar producer enhancements, if any.
(h) The requirements under paragraph (a) of this subsection do not mean the annuity with the lowest onetime or multiple occurrence compensation structure shall necessarily be recommended.
(i) The requirements under paragraph (a) of this subsection do not mean the producer has ongoing monitoring obligations under the care obligation pursuant to this subsection, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the producer.
(j) In the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction, which includes taking into consideration 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 sixty (60) months.
(k) Nothing in this section shall be construed to require 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 but not limited to any securities license, in order to fulfill the duties and obligations contained in this section; provided 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.
(4) Disclosure obligation.
(a) Prior to the recommendation or sale of an annuity, the producer shall prominently disclose to the consumer on a form prescribed by the director or substantially similar thereto the following:
(i) A description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction;
(ii) An affirmative statement on whether the producer is licensed and authorized to sell the following products:
1. Fixed annuities;
2. Fixed indexed annuities;
3. Variable annuities;
4. Life insurance;
5. Mutual funds;
6. Stocks and bonds; and
7. Certificates of deposit;
(iii) An affirmative statement describing the insurers the producer is authorized, contracted (or appointed), or otherwise able to sell insurance products for, using the following descriptions:
1. From one (1) insurer;
2. From two (2) or more insurers; or
3. From two (2) or more insurers although primarily contracted with one (1) insurer;
(iv) A description of the sources and types of cash compensation and noncash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other producer or by fee as a result of a contract for advice or consulting services; and
(v) A notice of the consumer’s right to request additional information regarding cash compensation described in paragraph (b) of this subsection.
(b) Upon request of the consumer or the consumer’s designated representative, the producer shall disclose:
(i) A reasonable estimate of the amount of cash compensation to be received by the producer, which may be stated as a range of amounts or percentages; and
(ii) Whether the cash compensation is a onetime 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.
(c) Prior to or at the time of the recommendation or sale of an annuity, the 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. The disclosure requirements under this subsection are intended to supplement and not replace the disclosure requirements under section 41-1941, Idaho Code.
(5) Conflict of interest obligation. 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.
(6) Documentation obligation. 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 this section;
(b) Obtain a consumer-signed statement on a form prescribed by the director or substantially similar to such form, documenting:
(i) A customer’s refusal to provide the consumer profile information, if any; and
(ii) A customer’s understanding of the ramifications of not providing his consumer profile information or providing insufficient consumer profile information; and
(c) Obtain a consumer-signed statement on a form prescribed by the director or substantially similar to such form, acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the producer’s recommendation.
(7) Application of the best interest obligation. Any requirement applicable to a producer under this section shall apply 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.
(8) Transactions not based on a recommendation.
(a) Except as provided under paragraph (b) of this subsection, a producer shall have no obligation to a consumer under subsection (3) of this section related to any annuity transaction if:
(i) No recommendation is made;
(ii) A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer;
(iii) A consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended; or
(iv) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the producer.
(b) An insurer’s issuance of an annuity subject to paragraph (a) of this subsection shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.
(9) Prohibited practices. Neither a producer nor an insurer shall dissuade, or attempt to dissuade, a consumer from:
(a) Truthfully responding to an insurer’s request for confirmation of the consumer profile information;
(b) Filing a complaint; or
(c) Cooperating with the investigation of a complaint.
(10) Safe harbor for financial professionals.
(a) Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements under this section. This subsection 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. However, nothing in this subsection shall limit the insurance director’s ability to investigate and enforce the provisions of this section.
(b) Nothing in paragraph (a) of this subsection shall limit the insurer’s obligation to comply with section 41-1940B (1), Idaho Code, although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.
(c) For paragraph (a) of this subsection to apply, an insurer shall:
(i) Monitor the relevant conduct of the financial professional seeking to rely on paragraph (a) 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 securities laws, using information collected in the normal course of an insurer’s business; and
(ii) Provide to the entity responsible for supervising the financial professional seeking to rely on paragraph (a) of this subsection, such as the financial professional’s broker-dealer or investment adviser registered under federal securities laws, information and reports that are reasonably appropriate to assist such entity to maintain its supervision system.
(d) For purposes of this subsection, "financial professional" means a producer that is regulated and acting as:
(i) A broker-dealer registered under federal securities laws or a registered representative of a broker-dealer;
(ii) An investment adviser registered under federal securities laws or an investment adviser representative associated with the federal registered investment adviser; or
(iii) A plan fiduciary under section 3(21) of the employee retirement income security act of 1974 (ERISA) or a fiduciary under section 4975(e)(3) of the Internal Revenue Code or any amendments or successor statutes thereto.
(e) For purposes of this subsection, "comparable standards" means:
(i) 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 but not limited to regulation best interest and any amendments or successor regulations thereto;
(ii) With respect to investment advisers registered under federal securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on such investment advisers or investment adviser representatives by contract or under the investment advisers act of 1940, including but not limited to the form ADV and interpretations; and
(iii) With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to such status under ERISA or the Internal Revenue Code and any amendments or successor statutes thereto.

Legislative History

[41-1940A, added 2021, ch. 41, sec. 3, p. 113.]