211 CMR 96.05 - Duties of Insurance Producers and Insurers

Current through Register 1466, April 1, 2022

(1) In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another 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 as to his or her investments and other insurance products, his or her financial situation and needs and his or her suitability information.
(2) The Producer shall have informed the consumer of various features of the annuity, including but not limited to 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, and has a reasonable basis to believe that;
(a) The consumer would benefit from certain features of the annuity, such as tax-deferred growth, annuitization or death or living benefit;
(b) 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
(c) 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 and, in particular, an exchange or replacement within the preceding 36 months.
(3) Prior to the execution of a purchase, exchange or replacement of an annuity resulting from a recommendation, an insurance producer, or an insurer where no producers is involved, shall make reasonable efforts to confirm the consumers suitability information.
(4) Except as permitted under 211 CMR 96.05(5) an insurer shall not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity is based on the consumer's suitability information.
(5)
(a) Except as provided under 211 CMR 96.05(5)(b), neither an insurance producer, nor an insurer where no producer is involved, shall have any obligation to a consumer under 211 CMR 96.05(1) or (4) related to any recommendation if a consumer:
1. Refuses to provide relevant information requested by the insurance producer or insurer;
2. Decides to enter into an insurance transaction that is not based on a recommendation of the insurance producer or insurer; or
3. Fails to provide complete or accurate information.
(b) An insurer's issuance of an annuity subject to 211 CMR 96.05(5)(a) shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.
(6)
(a) An insurer shall establish a supervision system that is designed to achieve compliance with 211 CMR 96.00, including, but not limited to, the following:
1. The insurer shall maintain procedures to inform its insurance producers of the requirements of 211 CMR 96.00 and shall incorporate the requirements of 211 CMR 96.00 into relevant insurance producer training manuals;
2. The insurer shall establish standards for insurance producer product training and shall maintain procedures to require its insurance producers to comply with the requirements of 211 CMR 96.06;
3. The insurer shall provide product-specific training and training materials which explain all material features of its annuity products to its insurance producers;
4. The insurer shall maintain procedures for review of each recommendation prior to issuance of an annuity. The review procedures shall be designed to ensure that the recommendation is suitable. 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 review procedures may be designed to require additional review only of those transactions identified for additional review;
5. The insurer shall maintain procedures to detect unsuitable recommendations. In addition to investigating consumer complaints, these may include, but are not limited to, confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters and programs of internal monitoring. Insurers may comply with this requirement by applying sampling procedures, or by confirming suitability information after issuance or delivery of the annuity;
6. The insurer shall annually provide a report to senior management, including to the senior manager responsible for audit functions, which details a review, with appropriate testing, designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.
(b)
1. Insurers may contract for compliance with 211 CMR 96.05(6)(a). An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to 211 CMR 96.07 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with 211 CMR 96.05(6)(b)(2).
2. An insurer's supervision system under 211 CMR 96.05(6)(a) 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 function is properly performed.
3. 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.
(7) An insurance producer or, where no insurance producer is involved, the responsible insurer representative, shall at the time of sale:
(a) Make a record of any recommendation subject to 211 CMR 96.05(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.
(8) An 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.
(9)
(a) Sales made in compliance with FINRA requirements pertaining to suitability and supervision of annuity transactions shall satisfy the requirements of 211 CMR 96.00. 211 CMR 96.05(9) applies to FINRA broker-dealer sales of variable annuities and fixed annuities if the suitability and supervision is similar to those applied to variable annuity sales. However, nothing in 211 CMR 96.05(9) shall limit the commissioner's ability to investigate and enforce the provisions of 211 CMR 96.00.
(b) For 211 CMR 96.05(9)(a) to apply, an insurer shall:
1. monitor the FINRA member broker-dealer using information collected in the normal course of an insurer's business; and
2. Provide to the FINRA member broker-dealer information and reports that are reasonably appropriate to assist the FINRA member broker-dealer to maintain its supervision system.

Notes

211 CMR 96.05
Amended by Mass Register Issue 1316, eff. 7/1/2016.

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