Revised NAIC Suitability
As of 06/01/2023
Revised NAIC Suitability in Annuity Transactions Model Regulation
What is it?
On February 13, 2020, the NAIC adopted revisions to its Suitability in Annuity Transactions Model Regulation that impose a higher best interest standard of care for annuity sales. Similar to the SEC’s Regulation Best Interest (“Reg BI”), it requires producers to act in the best interest of the consumer without putting the producer’s or insurer’s financial interest ahead of the consumer’s, consisting of four core obligations:
- Conflict of interest
Each state needs to approve and adopt the revised model prior to these new best interest standards being applicable to annuity recommendations in that particular state. As of May 2023, 37 states have adopted the revised model’s best interest provisions.
What do I need to do?
- Gather and consider additional categories of consumer information
- Consider available options the producer is licensed to sell
- Consider the annuity as a whole, including underlying subaccounts and benefits
- Confirm a replacement substantially benefits the consumer if recommended, and consider whether they’ve had one within the previous 60 months
- Scope and terms of relationship with consumer
- Whether the producer is authorized to sell certain types of products (including fixed annuities, fixed indexed annuities, variable annuities, life insurance, mutual funds, stocks and bonds) and products of multiple insurers, or only one
- Sources and types of cash and noncash compensation received by the producer
Upon request, consumers can obtain an estimate of the amount of cash compensation received by the producer, and whether it’s a one-time or a multiple occurrence amount.
- Producers seeking appointment with an insurer to sell annuities are required to complete a new four-credit training course that covers the new requirements.
- Producers already appointed and who have previously completed a four-credit training are required to complete a new one-credit training course.
- Completion of these training courses is required within six months after the effective date of the revised Model Regulation in each state provided by third-party vendors. The revised Model also requires product-specific training.