§431:10D-623 - Duties of insurers and insurance producers.

[§431:10D-623] Duties of insurers and
insurance producers. (a) In recommending to a consumer the purchase of an
annuity or the exchange of an annuity that results in another insurance
transaction or series of insurance transactions, the insurance producer, or the
insurer where no producer is involved, shall have reasonable grounds for
believing that the recommendation is suitable for the consumer on the basis of
the facts disclosed by the consumer about the consumer's investments, other
insurance products, financial situation, and needs.

(b) Prior to the execution of a purchase or
exchange of an annuity resulting from a recommendation, an insurance producer,
or an insurer where no producer is involved, shall make reasonable efforts to
obtain information concerning:

(1) The consumer's financial status;

(2) The consumer's tax status;

(3) The consumer's investment objectives; and

(4) Such other information used or considered to be
reasonable by the insurance producer, or the insurer where no producer is
involved, in making recommendations to the consumer.

(c)(1) Except as provided under paragraph (2), neither
an insurance producer, nor an insurer where no producer is involved, shall have
any obligation to a consumer related to any recommendation if a consumer:

(A) Refuses to provide relevant information
requested by the insurer or insurance producer;

(B) Decides to enter into an insurance
transaction that is not based on a recommendation of the insurer or insurance
producer; or

(2) An insurer or insurance producer's recommendation
subject to paragraph (1) shall be reasonable under all the circumstances
actually known to the insurer or insurance producer at the time of the
recommendation.

(d) An insurer shall either ensure that a
system to supervise recommendations that is reasonably designed to achieve
compliance with this part is established and maintained by complying with
subsections (f), (g), and (h), or establish and maintain such a system, which
shall include but not be limited to:

(1) Maintaining written procedures; and

(2) Conducting a periodic review of the insurer's
records that is reasonably designed to assist in detecting and preventing
violations of this part.

(e) A managing general agent and independent
agency shall adopt a system established by an insurer to supervise
recommendations of its insurance producers that is reasonably designed to
achieve compliance with this part, or establish and maintain such a system,
which shall include but not be limited to:

(1) Maintaining written procedures; and

(2) Conducting a periodic review of records that is
reasonably designed to assist in detecting and preventing violations of this
part.

(f) An insurer may contract with a third party,
including a managing general agent or independent agency, to comply with the
requirement of subsection (d) to establish and maintain a system of supervision
of insurance producers under contract with or employed by the third party.

(g) An insurer shall make reasonable inquiry
to ensure that the third party contracting under subsection (f) is performing
the functions required under subsection (d) and shall take such action as is
reasonable under the circumstances to enforce the contractual obligation to
perform the functions. An insurer may comply with its obligation to make
reasonable inquiry by:

(1) Annually obtaining a certification from a third
party senior manager who has responsibility for the delegated functions that
the manager has a reasonable basis to represent, and does represent, that the
third party is performing the required functions; provided that no person may
provide a certification unless:

(A) The person is a senior manager with
responsibility for the delegated functions; and

(B) The person has a reasonable basis for
making the certification; and

(2) Based on reasonable selection criteria,
periodically reviewing the performance of selected third parties contracting
under subsection (f) to determine whether the third parties are performing the
required functions. The insurer shall perform those procedures to conduct the
review that are reasonable under the circumstances.

(h) An insurer that contracts with a third
party pursuant to subsection (f) and that complies with the requirements to
supervise in subsection (g) shall have fulfilled its responsibilities under
subsection (d).

(i) An insurer, managing general agent, or
independent agency is not required by subsections (d) and (e) to:

(1) Review, or provide for review of, all insurance
producer-solicited transactions; or

(2) Include in its system of supervision an insurance
producer's recommendations to consumers of products other than the annuities
offered by the insurer, managing general agent, or independent agency.

(j) A managing general agent or independent
agency who contracts with an insurer under subsection (f) shall promptly, when
requested by the insurer under subsection (g), give a certification as
described in subsection (g) or give a clear statement that it is unable to
satisfy the certification criteria.

(k) Compliance with the National Association
of Securities Dealers Conduct Rules pertaining to suitability shall satisfy the
requirements under this section for recommending variable annuities. Nothing
in this subsection shall limit the insurance commissioner's ability to enforce
this part. [L 2007, c 257, pt of §2]