Diane Hodgman, ChFC, AIRC
Compliance Analyst, Individual Annuities
OAR 836-080-0170 – 0190: Suitability Analysis and Product Training
July 1, 2011
Continuing Education Deadline:
August 1, 2011
Suitability of Annuity Sales
Effective July 1, 2011, Oregon rule OAR 836-080-0170 through 836-080-0190 expands suitability requirements in the purchase, exchange, or replacement of annuities. As of August 1, it requires insurance producers to receive continuing education credits in annuities as well as training in the features of the insurers' products they sell.
It also details the minimum information to be collected in a producer's analysis of an annuity recommendation's suitability, and requires both the producer and insurer to have reasonable grounds for believing that the recommendation is suitable for the consumer. Special attention must be paid to an exchange or replacement that follows another for that consumer within three years. Insurers are required to review the suitability of each annuity recommendation and may not issue an annuity unless they have determined it is suitable.
Oregon's new rule follows the suitability model regulation adopted by the NAIC in 2010, Suitability in Annuity Transactions, with minor deviations, especially in effective dates.
One-Time CE Training
Effective August 1, 2011, an Oregon annuity producer must complete four CE credits of annuity training in a course or courses offered by a provider registered with the Oregon Insurance Division. This is a one-time requirement. Satisfaction of substantially similar training requirements in another state may satisfy Oregon's requirement.
Producers who are already selling annuities on August 1, 2011, must complete the training by January 1, 2012. Producers newly licensed to sell annuities on or after August 1, 2011, must earn their credits before they can sell annuities.
Producers can take approved continuing education courses at The Standard Continuing Education Center. On the Annuities page of our website, select State-Required Training to go to our education provider, SuccessCE. Then select Annuity Suitability Model Training CE. The Oregon Insurance Division website also helps producers find Oregon-approved annuity courses. Producers can email Oregon Insurance Division Producer Licensing Manager Jim Thompson with questions.
Before recommending any individual annuity product offered by The Standard, producers must submit proof of CE course completion to us. Before January 1, 2012, Oregon producers appointed with The Standard on or before August 1, 2011, must certify their four-credit training to us by submitting our form Insurance Producer Acknowledgment of Completion of Annuity Training along with a copy of their course certificate. We also will require training certification from each producer newly contracting with The Standard in order for him or her to sell our annuities.
Product Features Training
Effective July 1, 2011, Oregon's rule prohibits producers from selling an insurer's annuities without having been trained in its products' features, and requires insurers to verify that producers have completed their product-features training.
Oregon producers already appointed with The Standard on July 1, 2011, must complete our product features training by July 1. After July 1, they must complete it before presenting our products to their clients. Annuity producers newly contracting with us on or after July 1 must complete the training before they can sell The Standard's annuities.
Producers can find a training module for each product at The Standard Continuing Education Center. On the Annuities page of our website, select State-Required Training to go to our education provider, SuccessCE. Then select Required Annuity Product-Specific Training.
In recommending an annuity to a prospective purchaser, the producer must have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed during the sale. The producer must analyze at least 12 points of suitability information about the purchaser, including:
- Annual income
- Financial situation and needs, including financial resources used for the funding of the annuity
- Financial experience
- Financial objectives
- Intended use of the annuity
- Financial time horizon
- Existing assets, including investment and life insurance holdings
- Liquidity needs
- Liquid net worth
- Risk tolerance
- Tax status
In performing a suitability analysis for an annuity offered by The Standard, producers must collect information on our Suitability Profile form. This form incorporates the client's financial situation with the 12 points of suitability information to help producers determine whether a particular annuity is a suitable purchase. Producers must submit the completed Suitability Profile form to The Standard with the application, keep a copy in their files and provide a copy to the client.
To find our Suitability Profile form, go to The Standard's website. On the Annuities page, select Find Forms & Materials, and proceed through the new-business forms search under the appropriate state.
Producer's Belief An Annuity Is Suitable
As a result of the suitability analysis, the producer must have a reasonable basis to believe that all the following points are true:
- The consumer has been reasonably informed of the various features of the annuity, such as:
- Surrender charge period and amounts
- Potential tax penalties associated with a sale, exchange, surrender or annuitization of the annuity
- Expenses and investment advisory fees
- Features of and potential charges for riders
- Limitations on interest returns
- Insurance and investment components
- Market risk
- The consumer would benefit from the annuity's features.
- The annuity as a whole, including any riders or product enhancements, is suitable for the consumer based on his or her suitability information. In the case of an exchange or replacement, the transaction as a whole is suitable.
- An exchange or replacement (if applicable) is suitable taking into consideration, among other factors, whether the consumer:
- Will incur a surrender charge or be subject to the start of a new surrender period
- Will lose existing contractual benefits
- Will be subject to increased fees, investment advisory fees, or charges for riders and product enhancements
- Will benefit from product enhancements and improvements
- Has transacted another annuity exchange or replacement and, in particular, has had one within the preceding 36 months
The Standard will review each annuity application for suitability and will not issue an annuity unless we have a reasonable basis to determine that the recommendation is suitable. Annuity sales made in compliance with FINRA suitability requirements and supervised under FINRA rules satisfy the requirements of Oregon's suitability rule.
The producer must, at the time of sale, make a record of any recommendation made to a purchaser. The record must contain the information collected from the consumer and any other information used to make the recommendation. The producer must be able to provide The Standard or the director of the Oregon Department of Consumer Business and Services with records for three years after the transaction is completed or as long as the annuity is in force with The Standard, whichever is longer.
Producers may not dissuade consumers from truthfully responding to an insurer's request for confirmation of suitability information, filing a complaint or cooperating with the investigation of a complaint.
Insurer's Suitability Supervision
Insurers must supervise the suitability of their producers' sales and may not issue an annuity unless there is a reasonable basis to believe it is suitable based on the consumer's suitability information. Insurers must review the suitability of every recommendation, either in-house or by contracting with a third party. Insurers must also maintain procedures to detect — before or after policy issue and delivery — any unsuitable recommendations. This monitoring may include confirmation of consumer suitability information through customer interviews, confirmation letters or other means.
The rule requires every insurer to report annually to its senior management on the effectiveness of its suitability supervision system, the exceptions discovered and any corrective action taken.
The director of the Oregon Department of Consumer Business and Services may order an insurance company, agency or producer to take corrective action for any consumer harmed by the insurance producer's violation of this regulation. State penalties are determined under Oregon's Unfair Trade Practices statute. A producer who submits unsuitable annuity recommendations to The Standard is subject to termination of his or her sales appointment.