On July 2, 2009, the NAIC’s Suitability of Annuity Sales (A) Working Group published an updated set of proposed revisions, which followed discussions with industry regarding the different distribution channels for annuity products.

The latest proposed revisions allow insurers to contract with third parties, including FIN RA member broker dealers, to supervise annuity transactions. The July 2 draft exempts insurers from performing a suitability review of annuity transactions for which a FIN RA member broker dealer is responsible and the insurer has determined that such broker dealer’s supervision system conforms with FIN RA principal review requirements. The latest draft also permits an insurer to use an automated suitability review system for all recommended annuity sales through other distribution channels. In all cases, however, the insurer remains responsible and liable for compliance with the suitability review requirements, including for any deficiency in an automated system, and the insurer shall not issue an annuity recommended to a consumer unless the annuity is suitable.

The July 2 draft clarifies the ongoing nature of insurers’ distribution monitoring requirements: insurers must establish a continuous monitoring system reasonably designed to identify producer violations of suitability requirements as well as failures to comply with the insurer’s supervision system. Insurers must also continuously collect and analyze relevant data, and evaluate the effectiveness of implemented supervision systems and procedures.

The July 2 draft specifically addresses opt-outs by consumers to provide suitability information by imposing additional requirements on insurers, insurance producers and insurance agencies. Insurers that permit opt-outs will be required to interview each consumer who does not provide suitability information.

The Working Group has requested comment on specific questions concerning: (i) restricting or prohibiting producer compensation for non-recommended sales, (ii) comparisons with alternative financial products, and (iii) training requirements.