In February 2020, the NAIC approved revisions to the Suitability in Annuity Transactions Model 275, adopting a four-part best interest obligation, including the following obligations: care, disclosure, conflict of interest, and documentation. The revisions to Model 275 also fertilized the producer training requirements and the insurer supervision system with respect to annuity recommendations to consumers. The status of state adoption of changes to their suitability requirements are as follows:
Below is a summary of the differences between the state initiatives and the revisions to Model 275.
To graft with the federal securities laws and the Department of Labor, Model 275 adopted a “best interest obligation” standard. Alabama and Kentucky differ from Model 275 because their state initiatives currently do not use the term “best interest,” but the operative provisions of these states’ initiatives contain the same four parts as the Model 275 “best interest obligation.”
As part of the care obligation, Model 275 requires the producer to communicate the basis of the recommendation to the consumer. During its drafting sessions, the NAIC Suitability Working Group opted not to require this to be in writing. However, Montana specifically requires a producer to “communicate the basis or bases of the recommendation to the consumer in writing.”
As part of the disclosure obligation, Model 275 requires the producer to provide the following to the consumer:
Model 275 provides a template for such disclosure in Appendix A and requires the consumer to sign the last page of this disclosure document. However, Maine’s proposed changes require the consumer to sign each page of the producer disclosure.
Further updates to Model 275 address (a) new producer training requirements on the revised standard of care and (b) the ability to satisfy those training requirements with “substantially similar” courses. These updates to Model 275, and state differences, are as follows:
* With assistance from Jordan Luczaj, a student at the University of Miami School of Law.
1 Nevada’s current proposal is not based on the 2020 revisions to Model 275; however, Nevada is expected to introduce a substitute proposal that follows Model 275.