Massachusetts has proposed amendments to its Consumer Protection in Annuity Transactions Regulation with the intent of improving consumers’ understanding of annuity products for which recommendations have been made. The newly revised Massachusetts regulation conforms it to the 2010 revisions made by the National Association of Insurance Commissioners (NAIC) to the Suitability in Annuity Transactions Model Regulation. The 2010 revision of this model regulation addressed several issues, including producer training and insurer responsibility for ensuring the suitability of annuity purchases, regardless of whether the insurer has a third party supervising the suitability process.
Under the revised Massachusetts regulation, producers are required to complete a four-hour training course approved by the Massachusetts Insurance Division. Further, insurers are charged with verifying that producers have completed this training. The amendments also require that producers have insurer product-specific training as to the features available under a specific annuity contract and that a record be made of any recommendation made to a consumer regarding an annuity transaction. Additionally, the revised Massachusetts regulation would now include a definition of “Suitability Information” which, prior to the 2010 revised Model Regulation, had not been defined. Specifically, the producer must obtain and consider the impact of “suitability information”, i.e., the consumer’s age, annual income, financial and liquidity needs, intended use for the annuity, existing assets, risk tolerance and tax status, in its evaluation prior to the consumer’s purchase of the annuity.
The recent settlements involving Midland Life Insurance Company and in 2012 Allianz Life Insurance Company for failure to comply with suitability regulations highlight the importance of producer training and insurer monitoring of producer sales practices. In those settlements, annuity purchases were found to be unsuitable based upon the producer’s failure to identify and properly assess the suitability information referenced above. Adequate producer training and insurer verification might have prevented these objectionable sales from occurring, and it is thus crucial that the revised Massachusetts regulation, as currently proposed, includes these mandates.