NAIC Best Interest Model Regulation: Producer Guide Now Available
The National Association of Insurance Commissioners (NAIC) amended Model Rule 275 for Annuity Recommendations (“Annuity Best Interest Rule”) requires producers to act in the best interest of the consumer when recommending the purchase, exchange or replacement of an annuity. This model rule has been adopted and now applies to annuity sales in Arizona, Arkansas, Idaho, Iowa, Michigan, Rhode Island, Delaware, Ohio, Virginia, Texas and Montana. Several other states have adopted the model with effective dates throughout 2022. Please see the chart attached for information regarding state-by-state effective dates.
The Annuity Best Interest Rule requires that producers, when recommending an annuity, act in the best interest of the customer without placing their interest ahead of the consumer’s interest. A producer has acted in the consumer’s best interest if the care, disclosure, conflict of interest and documentation obligations are satisfied. The producer must make reasonable efforts to obtain the Consumer Profile Information prior to the recommendation.
As part of a best interest recommendation, a producer must address several requirements that are relevant to the best interests of the consumer. They include:
- Knowing the consumer’s financial situation,
- Understanding the available recommendation options,
- Having a reasonable basis to believe the recommended option addresses the consumer’s financial situation, and
- Communicating the basis or bases of the recommendation.
The Annuity Best Interest Rule also mandates various new documentation and disclosure requirements for producers. To help you consider these new best interest requirements, Lafayette Life Insurance Company has created a Producer Guide to help you identify, document and maintain the relevant factors and disclosures that may be necessary to make a best interest recommendation. This form is optional and for your records only. It should not be submitted with required application paperwork to Lafayette Life Insurance Company.
As part of the insurance company’s obligations under the Annuity Best Interest Rule, post-issuance we may require you to provide us with documentation indicating your compliance with the Annuity Best Interest Rule. The completed Producer Guide could be your documentation on a per annuity sale basis. As noted above, please do not provide the Producer Guide with your application paperwork.