2023 House Bill 1091 - SD Legislature amend provisions of the insurance statutes regarding producer recommendations and responsibilities.

ENTITLED An Act to amend provisions of the insurance statutes regarding producer recommendations and responsibilities.

Be it enacted by the Legislature of the State of South Dakota:

Section 1. That   58-33A-13 be AMENDED:

58-33A-13. Terms used in      58-33A-14 to 58-33A-27, inclusive, mean:

(1) "Annuity," an annuity that is an insurance product under state law that is individually solicited, whether the product is classified as an individual or group annuity;

(2) "Cash compensation," any discount, concession, fee, service fee, commission, sales charge, loan, override, or cash benefit received by a producer in connection with the recommendation or sale of an annuity from an insurer, intermediary, or directly from the consumer;

(3) "Consumer profile information," information that is reasonably appropriate to determine whether a recommendation addresses the consumer   s financial situation, insurance needs, and financial objectives, including, at a minimum, the following:

(a) Age;

(b) Annual income;

(c) Financial situation and needs, including debts and other obligations;

(d) Financial experience;

(e) Insurance needs;

(f) Financial objectives;

(g) Intended use of the annuity;

(h) Financial objectives;

(i) Existing assets or financial products, including investment, annuity and insurance holdings;

(j) Liquidity needs;

(k) Liquid net worth;

(l) Risk tolerance, including but not limited to, willingness to accept non-guaranteed elements in the annuity;

(m) Financial resources used to fund the annuity; and

(n) Tax status;

(4) "FINRA," the Financial Industry Regulatory Authority or a succeeding agency;

(5) "Intermediary," an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer   s annuities by producers;

(6) "Material conflict of interest," a financial interest of the producer in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation. Material conflict of interest does not include cash compensation or non-cash compensation;

(7) "Non-cash compensation," any form of compensation that is not cash compensation including health insurance, office rent, office support, and retirement benefits;

(8) "Non-guaranteed elements," the premiums, credited interest rates including any bonus, benefits, values, dividends, non-interest based credits, charges, or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation;

(9) "Producer," a person or entity required to be licensed under the laws of this state to sell, solicit or negotiate insurance, including annuities. This term also includes an insurer where no producer is involved;

(10) "Recommendation," advice provided by a producer to an individual consumer that was intended to result or results in a purchase, replacement, or exchange of an annuity in accordance with that advice. This term does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material. The term does not include presentation of illustrations or showing multiple products to educate and explain to the consumer the options available;

(11) "Replacement,    a transaction in which a new annuity is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer whether or not a producer is involved, that by reason of the transaction, an existing annuity or other insurance policy has been or is to be any of the following:

(a) Lapsed, forfeited, surrendered, partially surrendered, assigned to the replacing insurer, or otherwise terminated;

(b) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;

(c) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;

(d) Reissued with any reduction in cash value; or

(e) Used in a financed purchase; and

(12) "SEC," the United States Securities and Exchange Commission.

Section 2. That   58-33A-16 be AMENDED:

58-33A-16. A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer   s or the insurer   s financial interest ahead of the consumer   s interest. For purposes of this section, a producer has acted in the best interest of the consumer by satisfying the obligations regarding care in      58-33A-16.1 to 58-33A-16.3, inclusive, disclosure in      58-33A-16.4 to 58-33A-16.6, inclusive, conflict of interest in    58-33A-16.7, and documentation in    58-33A-19.2. Any requirement applicable to a producer under      58-33A-13 to 58-33A-27, inclusive, must apply to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back-office product support, and general supervision of a producer do not, in and of themselves, constitute material control or influence.

The following acts, when considered in isolation,do not constitute material control or influence:

(1) Receipt of override commissions;

(2) Transmittal of documents, including application to insurers; and

(3) Providing illustrations and quotes.

Section 3. That   58-33A-16.1 be AMENDED:

58-33A-16.1. Producers must, in making a recommendation:

(1) Exercise reasonable diligence, care, and skill to:

(a) Know the consumer   s financial situation, insurance needs, and financial objectives;

(b) Understand the available recommendation options after making a reasonable inquiry into options available to the producer;

(c) Have a reasonable basis to believe the recommended option effectively addresses the consumer   s financial situation, insurance needs, and financial objectives over the life of the product as evaluated in light of the consumer profile information; and

(d) Communicate the basis or bases of the recommendation;

(2) Make reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity;

(3) Consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer   s financial situation, insurance needs, and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation. A producer is not considered to be authorized for a product if the producers have no access to that product. The producer must be held to standards applicable to producers with similar authority and licensure; and

(4) Have a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features.

Factors generally relevant in making a determination whether an annuity effectively addresses the consumer   s financial situation, insurance needs, and financial objectives include the consumer profile information, characteristics of the insurer, product costs, rates, benefits, and features. The level of importance of each factor in this section may vary depending on the facts and circumstances of a particular case, but each factor may not be considered in isolation.

Section 4. That   58-33A-16.7 be AMENDED:

58-33A-16.7. A producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest. The following factors, when considered in isolation, are not material conflicts of interest:

(1) The producer has a minority ownership in an insurer or licensed business entity;

(2) The producer has a majority ownership in a licensed business entity, if the ownership is conspicuously disclosed to the consumer; or

(3) An immediate family member is employed by a licensed business entity.

An Act to amend provisions of the insurance statutes regarding producer recommendations and responsibilities.

I certify that the attached Act originated in the: House as Bill No. 1091 Chief Clerk Speaker of the House Attest: Chief Clerk President of the Senate Attest: Secretary of the Senate House Bill No. 1091 File No. ____ Chapter No. ______

Received at this Executive Office this _____ day of _____________, 2023 at ____________M. By for the Governor The attached Act is hereby approved this ________ day of ______________, A.D., 2023 Governor STATE OF SOUTH DAKOTA, ss. Office of the Secretary of State Filed ____________, 2023 at _________ o'clock __M. Secretary of State By Asst. Secretary of State