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Nevada Considers Best Interest Addition to Suitability Regulation

In a recent notice, Commissioner of Insurance Barbara D. Richardson announced a November 14 workshop designed to solicit comments on revisions to the state’s annuity suitability regulation. While there are other proposed changes to the regulation, of key interest is the addition of a definition of “best interest” and a corresponding change in the required standard of care.

The proposed change to the regulation includes the following definition of best interest:

“Best interest” means that, at the time an annuity is issued, a producer of insurance who is making a recommendation concerning the annuity acts with reasonable diligence, care, skill and prudence in a manner the producer of insurance believes will put the interest of the consumer first. The term does not mean that a resulting recommendation is:

  1. the least expensive annuity,

  2. the annuity with the highest stated interest rate or income payout rate, or

  3. the single best annuity,

which is available in the marketplace at the time of the annuity transaction.

That flows through to a proposed new standard of care. The insurer must have a reasonable basis to believe that, among other things:

The 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, further the insurance needs and financial objectives, and are in the best interest, of that consumer based on his or her suitability information;

There would also be new disclosure mandates including disclosure of any “material conflicts of interest arising from financial incentives that are associated with the recommendation…”.

While there are many compliance issues raised by this proposal, one of those is that the operation of the two provisions excerpted above seems to require additional oversight of the field. An insurer, before issuing an annuity contract subject to the proposed regulation would have to determine that the producer acted with reasonable diligence, care, skill and prudence so that the producer acts in a way that he or she believes puts the best interest of the consumer first. I think many companies will be in a position of having to put new standards and controls in place to ensure that they can be comfortable making the determination that the producer has acted in the best interest of the consumer.

We recommend paying attention to this regulation in Nevada and tracking revisions and progress as it moves, potentially, toward promulgation.

Thanks to Alan Prochoroff for bringing this to our attention through his publication, Insurance Compliance Insight. If you have questions about this or other suitability regulations, you can reach me at ccurrin@currincompliance.com or contact Pete Rock at prock@currincompliance.com.

#FridayFreebies

Did you know we have FREE resources available right on our home page and through our online education portal? WE DO!

There are tips and white papers and samples…oh my! Take a look at our FREE Downloads section and scroll down further to check out our online education and training courses. There are some freebies listed there, too. It’s quick and easy to explore our online education portal. Drop us a line at info@currincompliance.com or call (518) 692-2494 if you have any questions or would like some help with your compliance needs.

How to gain compliance buy-in!

 Currin Compliance Services, Inc.

Getting compliance buy-in isn’t always easy. Your company could have the highest compliance standards in the world, but if you can’t get the message heard effectively, then it won’t move your company ahead.

So what can you do? A lot, actually! Having a communication plan in place can help your company become raving fans of the compliance department. Here are six steps to help get you started:

  1. Determine Your Goal: Really think through what you’re trying to achieve – make it clear and specific. Defining your goal is the basis of determining your communication strategy.

  2. Understand Your Audience: Along with your goal, you need to understand who you’re speaking to. Often those in compliance aren’t “speaking the same language” as their audience and that contributes to the feeling that compliance isn’t in touch with others. Find out what motivates your audience and what their needs are. Connect your compliance message to how it helps them achieve their goals.

  3. Evaluate Readiness and Need: Next figure out how ready your audience is for the communication, and what the level of need is for the communication. The higher the readiness, the more easily you’ll get buy in. If readiness is lower, determine what the most important issues are to communicate and start there.

  4. Review Current Resources: Are there key individuals you can bring in to help get greater buy-in? Think of those with decision-making abilities or those who influence the decision makers. Leverage these individuals to help spread your message to others. Also, look for what’s already in place and working well – then build off that. Keep this motto in mind: “Grow the seeds, not the weeds!”

  5. Select Content: Use materials that speak to your company’s overall tone and culture. Continue to show how your compliance message is in line with your company’s goals. Don’t be afraid to be creative. Breaking down the information into bite-sized pieces, rather than a long, technical presentation, can help with engagement and retention. Think about using things like role-play scenarios, games, and cartoons/animation in the delivery of your message. Whenever possible, get face-to-face with your audience. While shooting off some e-mails may feel like it’s saving you time, or giving you some space from a difficult conversation, talking in person usually ends up being more productive.

  6. Develop Schedule: Chances are, your target audience is receiving messages from lots of different areas – both internally, and perhaps even externally. As you develop a communication plan, find out what your target audience is already receiving. Check to make sure there aren’t mixed messages or conflicting information. If possible, you may be able to synch up your communications with other information your target audience is receiving. This will help reduce information-overload, and help you be even more effective in your communication delivery.

Disclosure Requirements for Non-illustrated Products

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There often is a bit of confusion concerning the disclosure requirements for non-illustrated products.

This requirement comes in part from NY Section 3209. This section calls for preliminary information (see 3209(d) for requirements) to be provided at or before the time of application. Then a policy summary (see 3209(e) for requirements) is required at or before the time of policy delivery.

However, 3209(l) then goes on to say:

‘(l) An insurer of any life insurance policy or annuity contract subject to this section shall notify the superintendent whether its policies or contract forms have been or will be marketed with or without an illustration.  

For those policies and contracts marketed with an illustration which complies with the regulations promulgated pursuant to subsection (k) of this section, no preliminary information or policy summary shall be required.

For those policies that are not marketed with an illustration, the preliminary information and policy summary shall be provided pursuant to the provisions of this section.’

Now, here’s where things get messy for non-illustrated products. Preliminary Information & the Policy Summary must be provided. These include projections on a current basis. But NY Regulation 74 indicates that any depiction of non-guaranteed elements to be an illustration. But the product is supposed to be non-illustrated. And now we are going around in the dreaded compliance circle.

To allow for non-illustrated products to exist in NY, the Department has taken the position that as long as the Preliminary Information & the Policy Summary show only the non-guaranteed elements required by 3209 (and 53-2.1 & 53-22 for UL type policies) then these would not be considered illustrations within the meaning of Regulation 74.

Again, a bit messy.

Confused about designing annuities in NY?

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This course, authored by Tom Hartman, Senior Compliance Actuary (formerly with NYSDFS), clarifies the requirements in detail so you know exactly which product designs will and will not work.

When it comes to understanding these requirements, few are as knowledgeable as Tom. This course will help you develop products with confidence, determine an appropriate filing method, and achieve an approval quickly.

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Download this free white paper to learn some basic and common drafting issues.

If you would like more information about the Demystifying NYS Annuity Nonforfeiture course, please email Glenda Bean or call her directly at (518) 512-0172.