Current through Register Vol. 56, No. 6, March
18, 2024
(a) 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 and as to
his or her financial situation and needs, including the consumer's suitability
information, and that there is a reasonable basis to believe all of the
following, which are intended to supplement and not replace the requirements
for disclosure set forth in N.J.A.C. 11:4-59:
1. The consumer has been reasonably 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; potential charges for and features of riders; limitations on
interest returns; insurance and investment components; and market
risk;
2. The consumer would benefit
from certain features of the annuity, such as tax deferred growth,
annuitization, or death or living benefit;
3. 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
4. In
the case of an exchange or replacement of an annuity, the exchange or
replacement is suitable including taking into consideration whether:
i. 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;
ii. The
consumer would benefit from product enhancements and improvements;
and
iii. The consumer has had
another annuity exchange or replacement and, in particular, an exchange or
replacement within the preceding 36 months.
(b) 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 producer is involved, shall make
reasonable efforts to obtain the consumer's suitability information.
(c) Except as permitted under (d) below, an
insurer shall not issue an annuity recommended to a consumer unless there is a
reasonable basis to believe the annuity is suitable based on the consumer's
suitability information.
(d)
Neither an insurance producer, nor an insurer, shall have any obligation to a
consumer under (a) or (c) above related to any annuity transaction if any of
the following listed below in (d)1 through 4 exist, except that an insurer's
issuance of an annuity shall be reasonable under all the circumstances actually
known to the insurer at the time the annuity is issued:
1. No recommendation is made;
2. A recommendation was made and was later
found to have been prepared based on materially inaccurate information provided
by the consumer;
3. A consumer
refuses to provide relevant suitability information and the annuity transaction
is not recommended; or
4. A
consumer decides to enter into an annuity transaction that is not based on a
recommendation of the insurer or the insurance producer.
(e) An insurance producer or, where no
insurance producer is involved, the responsible insurer representative, shall
at the time of sale:
1. Make a record of any
recommendation subject to (a) above;
2. Obtain a statement signed by the customer
documenting a customer's refusal to provide suitability information, if any;
and
3. Obtain a statement signed by
the customer 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.
(f) An insurer shall establish a supervision
system that is reasonably designed to achieve the insurer's and its insurance
producers' compliance with this subchapter, including, but not limited to, the
following:
1. The insurer shall maintain
reasonable procedures to inform its insurance producers of the requirements of
this subchapter and shall incorporate the requirements of this subchapter into
relevant insurance producer training manuals;
2. The insurer shall establish standards for
insurance producer product training and shall maintain reasonable procedures to
require its insurance producers to comply with the requirements of
11:4-59A.4;
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 that are designed
to ensure that there is a reasonable basis to determine that a 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 an electronic or other system may be designed to
require additional review only of those transactions identified for additional
review by the selection criteria;
5. The insurer shall maintain reasonable
procedures to detect recommendations that are not suitable. These may include,
but are not limited to, confirmation of consumer suitability information,
systematic customer surveys, interviews, confirmation letters, and programs of
internal monitoring. Nothing in this paragraph shall prevent an insurer from
complying with this paragraph by applying sampling procedures, or by confirming
suitability information after issuance or delivery of the annuity;
and
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, reasonably designed to determine the effectiveness of the supervision
system, the exceptions found, and corrective action taken or recommended, if
any.
(g) Nothing in (f)
above shall restrict an insurer from contracting for performance of a function
(including maintenance of procedures) required under (f) above. An insurer is
responsible for taking appropriate corrective action and may be subject to
sanctions and penalties pursuant to
11:4-59A.6 regardless of whether
the insurer contracts for performance of a function and regardless of the
insurer's compliance with (g)1 below.
1. An
insurer's supervision system under (f) above shall include supervision of
contractual performance under that subsection, which shall include, but not be
limited to, the following:
i. Monitoring and,
as appropriate, conducting audits to assure that the contracted function is
properly performed; and
ii.
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.
(h) 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.
(i) An insurance producer shall not dissuade,
or attempt to dissuade, a consumer from:
1.
Truthfully responding to an insurer's request for confirmation of suitability
information;
2. Filing a complaint;
or
3. Cooperating with the
investigation of a complaint.
(j) Sales made in compliance with FINRA
requirements pertaining to suitability and supervision of annuity transactions
shall satisfy the requirements under this subchapter. This subsection 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 this subsection shall be construed to limit the
Commissioner's ability to enforce (including investigate) the provisions of
this subchapter.
1. For this subsection to
apply, an insurer shall:
i. Monitor the FINRA
member broker-dealer using information collected in the normal course of an
insurer's business; and
ii. 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.
