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Barbara D. Richardson

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 or contact Pete Rock at