California Lawmakers OK Annuity Suitability Bill Based on NAIC Model
August 30, 2011 by Arthur D. Postal
bill, A.B. 689, has made it through the California Legislature and is waiting
for the signature of Gov. Jerry Brown.
The bill passed in the state Senate by a 34-0 vote; it passed in the Assembly
by a 79-0 vote in May and by a 76-0 vote last week.Brown has until Sept. 9 to sign the bill, officials say.
California Insurance Commissioner Dave Jones says he is glad to see A.B. 689
pass after “several years of failed attempts” to get an annuity suitability bill
“California needs a comprehensive system that requires that insurers
supervise and ultimately take responsibility for insurance producer annuity
recommendations and sales in California,” Jones says in a statement.
A.B. 689 is California’s response to a provision in the
Dodd-Frank Wall Street Reform and Consumer Protection Act that encourages states
to adopt annuity standards that are at least as rigorous as the suitability
standards in the Suitability in Annuity Transactions Model that was approved by
the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., in
2010 or else face the possibility that they might lose the right to regulate
products such as indexed annuities.
Today, California requires annuity sellers to give consumers replacing
annuities at least 30 days to get their money back, and it also prohibits
annuity sellers from using materially inaccurate presentations to recommend that
senior citizens buy unnecessary replacement annuities, according to an A.B. 689
analysis prepared by the Assembly staff.
But Michael Martinez, the legislative director at the California Department
of Insurance, which gave A.B. 689 strong support, told the state Senate
Appropriations Committee in a letter sent in July that the state now has no law
that requires an insurer or an agent to determine whether an annuity is suitable
for a client before recommending it.
No California law requires insurers or agents to ask a consumer for the
information needed for a suitability analysis, such as information about a
consumer’s financial objectives, existing assets or liquidity needs, Martinez
“The insurer or producer recommending the sale of an annuity must be
responsible for collecting appropriate annuity suitability information from the
consumer and receive proper training in evaluating that information to assess
whether the sale of an annuity is in the best interest of the consumer prior to
making the sale,” Martinez said.
The NAIC model requires producers to sell an annuity only if there are
reasonable grounds for believing that the annuity is suitable for a consumer
based on the financial and investment information disclosed by the consumer.
A.B. 689 would require insurance producers involved with selling, exchanging
or replacing annuities recommended to a consumer to have annuity suitability
training and to have reasonable grounds for believing the annuity transactions
under consideration to be suitable for the consumer, according to the
legislative counsel’s digest for the bill.
Both agents and insurers could face sanctions and penalties in connection
with violations of the requirements.
A.B. 689 would exempt broker-dealers already regulated by the Financial
Industry Regulatory Authority. FINRA-member broker-dealers that sell variable
annuities and other variable products are already governed by FINRA suitability
California A.B. 689: What’s in There?
The requirements listed in the bill would not apply to:
Suitability information would include matters such as use of reverse
A producer would need to have evidence that a consumer would receive a
An insurer and a producer would hav no suitability obligation to a consumer
The continuing education provisions would require a producer to get 8 hours