On May 26, 2009, the NAIC's Suitability of Annuity Sales (A) Working Group issued a discussion draft of proposed revisions to its Suitability in Annuity Transactions Model Regulation. This draft incorporates the recommendations of the Training Subgroup and the Subgroup examining annuity sales not involving a recommendation. At the Spring 2009 National Meeting, the Suitability Working Group appointed these Subgroups to address major issues raised in comments to a prior discussion draft.  

The Training Subgroup was tasked to provide recommendations on the amount of producer training and testing that would be required, including individual product training, and the extent to which insurers would be required to verify that producers had completed the required training. The Training Subgroup proposed three levels of training:  

  • Initial competency training on fixed annuities and index annuities, including passing an examination.
  • Continuing education covering annuity suitability, replacements, disclosure and ethics of not less than four hours every 24 months.
  • Product training through a "Firm Training Program."  

The Firm Training Program must include product training "to the extent reasonably necessary to ensure each insurance producer has adequate knowledge of the material features of annuity products the insurance producer offers." If a producer has not completed the first two training requirements, the producer may not sell annuities. If a producer has not completed the Firm Training Program, the producer may sell annuities for up to three months provided that the producer's recommendations are overseen by a producer who has successfully completed the Firm Training Program. Insurers' supervision systems must include procedures reasonably designed to verify producers' completion of training prior to selling annuities.  

Another Subgroup was tasked to consider:  

  • Whether insurers should be prohibited from issuing an annuity unless the insurer has received sufficient information to determine if the annuity is suitable; and
  • The extent to which there should be any safe harbor if there is compliance with the Guidelines to be developed by the NAIC Life Insurance Committee.  

The Subgroup recommended changes to the draft that would permit an insurer to issue annuities that are not "recommended" or to issue annuities if the insurer does not receive suitability information so long as the insurer takes reasonable effort to interview the consumer to confirm that the transaction was not recommended or the consumer refused to provide suitability information. In addition, the Subgroup recommended limiting producer compensation for the sale of an annuity that is not recommended to 50% of the compensation paid for a recommended annuity sale. On the safe harbor issue, the Subgroup recommended that an insurer's compliance with the Guidelines not be a safe harbor, but instead would be admissible in evidence and considered in any department proceeding.  

Comments on the May 26th discussion draft are due on or before June 8, 2009. Comments received will be discussed at the Summer National Meeting.  

The current New Suitability in Annuity Transactions Discussion Draft is available here