Utah Admin. Code R590-230-4 - Duties of Insurers and of Producers

(1) 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 acts in the best interest of the consumer if they satisfy the obligations of this Subsection (1).

(a) Care obligation.

(i) The 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 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 requirements of care obligation:

(A) include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity;

(B) 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;

(C) 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; and

(D) only create a regulatory obligation as established in this rule.

(iii)

(A) The requirements of care obligation do not:

(I) include 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;

(II) create a fiduciary obligation or relationship;

(III) mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended; and

(IV) mean the producer has ongoing monitoring obligations, 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.

(B) The producer shall be held to standards applicable to producers with similar authority and licensure.

(iv) The consumer profile information, characteristics of the insurer, and product costs, rates, benefits, and features are the factors 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 care obligation may vary depending on the facts and circumstances of a particular case, but each factor may not be considered in isolation.

(v) The care obligation applies 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, rider, and similar product enhancement, if any.

(vi) In the case of an exchange or replacement of an annuity, the producer shall 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 60 months.

(vii) Nothing in this rule shall be construed to require a producer to obtain a license other than a producer license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including any securities license, in order to fulfill the duties and obligations contained in this rule, if the producer does not give advice or provide services that are otherwise subject to securities laws or engage in another activity requiring other professional licenses.

(b) Disclosure obligation.

(i) Before the recommendation or sale of an annuity, the producer shall prominently disclose to the consumer on a form substantially similar to Appendix A of the NAIC Suitability in Annuity Transactions Model Regulation:

(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:

(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 the producer is authorized, contracted, appointed, or otherwise able to sell an insurance product for, using the following descriptions:

(I) 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 each source and type of cash compensation and non-cash 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 the premium or other remuneration received from the insurer, intermediary, or other producer, or by a 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 described in Subsection (1)(b)(ii).

(ii) Upon request of the consumer or the consumer's designated representative, the producer shall 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 occurrence, which may be stated as a range of amounts or percentages.

(iii) Before 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.

(iv) The requirements of the disclosure obligation shall supplement and not replace the disclosure requirements of Rule R590-229.

(c) Conflict of interest obligation. A producer shall identify and avoid or reasonably manage and disclose any material conflict of interest, including a material conflict of interest related to an ownership interest.

(d) Documentation obligation. A producer shall, at the time of recommendation or sale:

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

(ii) obtain a consumer signed statement on a form substantially similar to Appendix B of the NAIC Suitability in Annuity Transactions Model Regulation documenting:

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

(B) a customer's understanding of the ramifications of not providing their consumer profile information or providing insufficient consumer profile information; and

(iii) obtain a consumer signed statement on a form substantially similar to Appendix C of the NAIC Suitability in Annuity Transactions Model Regulation 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.

(e) Application of the best interest obligation. Any requirement applicable to a producer under this Subsection (1) shall apply to each 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) Transactions not based on a recommendation.

(a) Except as provided in Subsection (2)(b), a producer is not obligated to a consumer under Subsection (1)(a) 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 Subsection (2)(a) shall be reasonable under the circumstances known to the insurer at the time the annuity is issued.

(3) Supervision system.

(a) Except as permitted under Subsection (2), 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 consumer's financial situation, insurance needs, and financial objectives based on the 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 this rule. The supervision system shall include at a minimum the items in this Subsection (3)(b).

(i) The insurer shall establish and maintain reasonable procedures to inform its producers of the requirements of this rule and shall incorporate the requirements of this rule 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 R590-230-5.

(iii) The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its producers.

(vi)

(A) The insurer shall establish and maintain 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 particular consumer's financial situation, insurance needs, and financial objectives.

(B) The 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.

(C) 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)

(A) The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with Subsections (1), (2), (4), and (5) that may include confirmation of the consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations, and programs of internal monitoring.

(B) Nothing in this Subsection (3)(a)(v) prevents an insurer from complying with this Subsection (3)(a)(v) 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 the consumer the information required 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)

(A) The insurer shall establish and maintain 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 period of time.

(B) The requirements of this Subsection (3)(b)(viii) are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees if those benefits are not based upon the volume of sales of a specific annuity within a limited period.

(ix) The insurer shall annually provide a written report to senior management, including to the senior manager responsible for audit functions, that 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 Subsection (3) restricts an insurer from contracting for the performance of a function, including maintenance of procedures. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties regardless of whether the insurer contracts for the performance of a function and regardless of the insurer's compliance with Subsection (3)(c)(ii).

(ii) An insurer's supervision system under this Subsection (3) shall include supervision of contractual performance that includes:

(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) 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.

(5) Safe harbor.

(a)

(i) Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements under this rule.

(ii) This Subsection (5) 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.

(b) Nothing in Subsection (5)(a) limits the insurer's obligation to comply with Subsection R590-230-4(3), although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

(c) For Subsection (5)(a) to apply, an insurer shall:

(i) monitor the relevant conduct of the financial professional seeking to rely on Subsection (5)(a) or the entity responsible for supervising the financial professional, such as the financial professional's broker-dealer or an investment adviser registered under federal or state 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 Subsection (5)(a), 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.

Notes

Utah Admin. Code R590-230-4

Amended by Utah State Bulletin Number 2023-24, effective 12/8/2023