§ 44-8106 — Recommendation of annuity; obligations; requirements; supervision system, required; producer; insurer; prohibited acts; safe harbor requirements; maintenance of records; Director of Insurance; powers

Nebraska § 44-8106

• Jurisdiction: Nebraska
• Ch. 44: Insurance

Text

(1) The 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 and met the best interest obligation if the following care, disclosure, conflict of interest, and documentation obligations are satisfied:
(a)(i) In meeting the care obligation for making a recommendation, the producer 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 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, as evaluated in light of the consumer profile information; and
(D) Communicate the basis or bases of the recommendation.
(ii) The care obligation requirements under subdivision (a)(i) of this subsection include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.
(iii) The care obligation requires 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.
(iv) The care obligation does not create a fiduciary obligation or relationship and only creates a regulatory obligation as established in this subsection.
(v) 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 may vary depending on the facts and circumstances. However, in no instance shall each factor be considered in isolation.
(vi) The care obligation requires the producer to have 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.
(vii) The care obligation requirements under subdivision (1)(a) of this section 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 product enhancements, if any.
(viii) The care obligation does not require that the annuity with the lowest one-time or multiple occurrence compensation structure be recommended.
(ix) The care obligation does not include an ongoing monitoring obligation for the producer, although an ongoing monitoring obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the producer.
(x) In the case of an exchange or replacement of an annuity, the care obligation requires the producer to consider the whole transaction, which includes taking into consideration whether:
(A) 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;
(B) The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and
(C) The consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding sixty months.
(xi) Nothing in the Nebraska Protection in Annuity Transactions Act 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 of the care obligation, except that a producer shall not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring another professional license without first obtaining the appropriate license;
(b)(i) In meeting the disclosure obligation, the producer shall, prior to the recommendation or sale of an annuity, prominently disclose to the consumer on a form created or previously approved by the Department of Insurance:
(A) A description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction;
(B) An affirmative statement on whether the producer is licensed and authorized to sell the following products: Fixed annuities; fixed indexed annuities; variable annuities; life insurance; mutual funds; stocks and bonds; or certificates of deposit;
(C) An affirmative statement describing the insurers the producer is authorized, contracted, appointed, or otherwise able to sell insurance products for using one of the following descriptions: From one insurer; from two or more insurers; or from two or more insurers although primarily contracted with one insurer;
(D) 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 a premium, by 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
(E) A notice of the consumer's right to request additional information regarding cash compensation as described in subdivision (b)(ii) of this subsection.
(ii) As part of the disclosure obligation, the producer shall, upon request of the consumer or the consumer's designated representative, disclose:
(A) 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
(B) Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrences, which may be stated as a range of amounts or percentages.
(iii) As part of the disclosure obligation, the producer shall, prior to or at the time of the recommendation or sale of an annuity, 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 nonguaranteed elements of the annuity, insurance and investment components, and market risk;
(c) In meeting the conflict of interest obligation, the producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including, but not limited to, material conflicts of interest related to an ownership interest;
(d) In meeting the documentation obligation, a producer shall at the time of sale:
(i) Make a written record of any recommendation subject to the Nebraska Protection in Annuity Transactions Act and of the basis for such recommendation;
(ii) Obtain a consumer-signed statement on a form created or previously approved by the Department of Insurance documenting:
(A) Any refusal by the consumer to provide consumer profile information; and
(B) The consumer's understanding of the ramifications of not providing consumer profile information or providing insufficient consumer profile information; and
(iii) Obtain a consumer-signed statement on a form created or previously approved by the Department of Insurance acknowledging that the annuity transaction is not recommended if a consumer decides to enter into an annuity transaction that is not based on the producer's recommendation; and
(e) Any best interest obligation requirement applicable to a producer under this subsection 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.
(2)(a) Except as provided in subdivision (2)(b) of this section, a producer shall have no obligation to a consumer under subdivision (1)(a) 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 subdivision (2)(a) of this section shall be deemed reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.
(3)(a) Except as permitted under subsection (2) of this section, an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives based on the consumer's consumer profile information.
(b) An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its producers' compliance with the Nebraska Protection in Annuity Transactions Act, including, but not limited to, the following:
(i) The insurer shall maintain reasonable procedures to inform its producers of the requirements of the act and shall incorporate such requirements into relevant producer training manuals;
(ii) The insurer shall establish and maintain standards for producer product training and shall establish and maintain reasonable procedures to require its producers to comply with the requirements of section 44-8108 ;
(iii) The insurer shall provide product-specific training and training materials which explain all material features of its annuity products to its producers;
(iv) The insurer shall establish and maintain procedures for review of each recommendation prior to 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. Such review procedures may apply 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 only of those transactions identified for additional review by the selection criteria;
(v) The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with subsections (1), (2), (4), and (5) of this section. This may include, but is not limited to, confirmation of the consumer profile information, systematic consumer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations, and programs of internal monitoring. Nothing in this subdivision shall prevent an insurer from complying with this subdivision 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;
(vi) The insurer shall establish and maintain reasonable procedures to assess, prior to 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;
(vii) The insurer shall establish and maintain reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information;
(viii) The insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subdivision 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 such benefits are not based upon the volume of sales of a specific annuity within a limited period of time; and
(ix) The insurer shall annually provide a written 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.
(c)(i) Nothing in this subsection restricts an insurer from contracting for performance of a function, including maintenance of procedures, required under this subsection. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to section 44-8107 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with subdivision (b) of this subsection.
(ii) An insurer's supervision system under this subsection shall include supervision of contractual performance under this subsection. 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 performed.
(d) An insurer is not required to include in its system of supervision:
(i) A producer's recommendations to consumers of products other than the annuities offered by the insurer; or
(ii) 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.
(4) 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.
(5)(a) Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the safe harbor requirements under this subsection. 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 ability of the Director of Insurance to investigate and enforce the provisions of this subsection.
(b) Nothing in subdivision (a) of this subsection shall limit the insurer's obligation to comply with subdivision (3)(a) 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.
(c) For subdivision (a) of this subsection to apply, an insurer shall:
(i) Monitor the relevant conduct of the financial professional seeking to rely on subdivision (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 subdivision (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 a federal registered investment adviser; or
(iii) A plan fiduciary under section 3(21) of the federal Employee Retirement Income Security Act of 1974 or a fiduciary under section 4975(e)(3) of the Internal Revenue Code of 1986, as such sections existed on January 1, 2021.
(e) For purposes of this subsection, comparable standards means:
(i) With respect to broker-dealers and registered representatives of broker-dealers, applicable federal Securities and Exchange Commission and Financial Industry Regulatory Authority rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including, but not limited to, Regulation Best Interest, as such rules existed on January 1, 2021;
(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 federal Investment Advisers Act of 1940, including, but not limited to, Form ADV and interpretations of Form ADV as such form and interpretations existed on January 1, 2021; and
(iii) With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to such status under the federal Employee Retirement Income Security Act of 1974 or the Internal Revenue Code of 1986, as such acts existed on January 1, 2021.
(6)(a) Insurers, general agents, independent agencies, and producers shall maintain or be able to make available to the Director of Insurance records of the information collected from the consumer, disclosures made to the consumer, including summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of a producer.
(b) Records required to be maintained by this subsection may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media or by any process that accurately reproduces the actual document.

Legislative History

Source: Laws 2006, LB 875, § 18; Laws 2007, LB117, § 31; Laws 2012, LB887, § 26; Laws 2021, LB22, § 4.