Starting on January 1, 2023, insurance agents and companies are required to act in the best interest of a consumer when recommending the purchase, exchange, or replacement of an annuity. This is known as the annuity best interest standard of conduct, and it helps protect consumers when they are considering an annuity.
Under Minnesota Statutes, section 72A.2032, an insurance agent (or insurance company when an agent is not involved) has acted in the best interest of a consumer when the agent satisfies four obligations when recommending an annuity. These obligations are:
(1) The agent exercises reasonable diligence, care, and skill to know the consumer’s financial situation, insurance needs and financial objectives; to understand the options available; to have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objectives; and to communicate the basis or rationale supporting his or her recommendation to a consumer.
(2) The agent discloses specific information on a form provided to the consumer, including a description of the agent’s role in the transaction, a statement about the products the agent is licensed and authorized to sell, a description of the types of compensation the agent will receive should a sale occur, and the consumer’s right to request additional information regarding the agent’s cash compensation.
(3) The agent identifies and avoids or manages and discloses any material conflicts of interest.
(4) The agent documents any recommendation made to a consumer, the basis for the recommendation, and, if applicable, obtains a signed statement from a consumer if the consumer refuses to provide their consumer profile information or decides to purchase an annuity that is not based on the agent’s recommendation.
As part of Minnesota’s annuity best interest standard of conduct law, insurance companies must 1) establish a process to assess whether agents provided consumers with the required information; 2) develop procedures to identify and address suspicious consumer refusals to provide their consumer profile information, and 3) eliminate sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period.
To satisfy the law’s training requirements, insurance agents must complete a one-time training course about the best interest standard of conduct. The specific training required depends on the previous training completed by the agent.
A licensed agent who holds a life insurance line of authority and who is qualified to sell annuities on or before December 31, 2022, must complete either:
(1) A new four-credit annuity training course approved after July 1, 2022;
(2) A onetime one-credit annuity training course covering information about the new requirements approved after July 1, 2022.
This training must be completed by July 1, 2023.
The only option for a licensed agent who obtains a life insurance line of authority on or after January 1, 2023 and wants to sell annuities is to complete a new four-credit annuity training course approved after July 1, 2022. This course must be completed before the agent engages in the sale of annuities.
Insurance agents are permitted to use either the NAIC template forms or the Minnesota-specific forms between January 1 and June 30, 2023. Starting on July 1, 2023, insurance agents (or insurance companies when an agent is not involved) will only be permitted to use the Minnesota-specific forms during the sale of annuities to Minnesota consumers. Both sets of forms can be found below.
NAIC Template Forms