26.1-34.2 Annuity Transaction Practices
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<![CDATA[CHAPTER 26.1-34.2ANNUITY TRANSACTION PRACTICES26.1-34.2-01. Exemptions. Unless otherwise specifically included, this chapter does notapply to recommendations involving:1.Direct response solicitations if there is no recommendation based on information<br>collected from the consumer pursuant to this chapter; and2.Contracts used to fund:a.An employee pension or welfare benefit plan that is covered by the Employee<br>Retirement and Income Security Act;b.A plan described by section 401(a), 401(k), 403(b), 408(k), or 408(p) of the<br>Internal Revenue Code, as amended, if established or maintained by an<br>employer;c.A government or church plan defined in section 414 of the Internal Revenue<br>Code, a government or church welfare benefit plan, or a deferred compensation<br>plan of a state or local government or tax-exempt organization under<br>section 457 of the Internal Revenue Code;d.A nonqualified deferred compensation arrangement established or maintained<br>by an employer or plan sponsor;e.Settlements of or assumptions of liabilities associated with personal injury<br>litigation or a dispute or claim resolution process; orf.Formal prepaid funeral contracts.26.1-34.2-02. Definitions.1."Annuity" means a fixed annuity or variable annuity that is individually solicited,<br>whether the product is classified as an individual or group annuity.2."Insurance producer" means a person required to be licensed under the laws of this<br>state to sell, solicit, or negotiate insurance, including annuities.3."Insurer" means a company required to be licensed under the laws of this state to<br>provide insurance products, including annuities.4."Recommendation" means advice provided by an insurance producer, or an insurer<br>when no producer is involved, to an individual consumer that results in a purchase or<br>exchange of an annuity in accordance with that advice.26.1-34.2-03. Duties of insurers and insurance producers.1.In recommending to a consumer the purchase of an annuity or the exchange of an<br>annuity that results in another insurance transaction or series of insurance<br>transactions, the insurance producer, or the insurer when no producer is involved,<br>must have reasonable grounds for believing that the recommendation is suitable for<br>the consumer on the basis of the facts disclosed by the consumer as to the<br>consumer's investments and other insurance products and as to the consumer's<br>financial situation and needs.Page No. 12.Before the execution of a purchase or exchange of an annuity resulting from a<br>recommendation, an insurance producer, or an insurer when no producer is<br>involved, shall make reasonable efforts to obtain information concerning:a.The consumer's financial status;b.The consumer's tax status;c.The consumer's investment objectives; andd.Other information used or considered to be reasonable by the insurance<br>producer, or the insurer when noproducerisinvolved,inmakingrecommendations to the consumer.3.a.Except as provided under subdivision b, neither an insurance producer nor an<br>insurer when no producer is involved has an obligation to a consumer under<br>subsection 1 related to a recommendation if a consumer:(1)Refuses to provide relevant information requested by the insurer or<br>insurance producer;(2)Decides to enter into an insurance transaction that is not based on a<br>recommendation of the insurer or insurance producer; or(3)Fails to provide complete or accurate information.b.An insurer or insurance producer's recommendation subject to subdivision a<br>must be reasonable under all the circumstances actually known to the insurer<br>or insurance producer at the time of the recommendation.4.a.An insurer shall ensure that a system to supervise recommendations that is<br>reasonably designed to achieve compliance with this chapter is established and<br>maintained by complying with subdivisions c through e, or shall establish and<br>maintain such a system, including:(1)Maintaining written procedures; and(2)Conducting periodic reviews of its records that are reasonably designed<br>to assist in detecting and preventing violations of this chapter.b.A general agent and independent agency shall adopt a system established by<br>an insurer to supervise recommendations of its insurance producers that is<br>reasonably designed to achieve compliance with this chapter, or shall establish<br>and maintain such a system, including:(1)Maintaining written procedures; and(2)Conducting periodic reviews of records that are reasonably designed to<br>assist in detecting and preventing violations of this chapter.c.An insurer may contract with a third party, including a general agent or<br>independent agency, to establish and maintain a system of supervision as<br>required by subdivision a with respect to insurance producers under contract<br>with or employed by the third party.d.An insurer shall make reasonable inquiry to ensure that the third party<br>contracting under subdivision c is performing the functions required under<br>subdivision a and shall take action as is reasonable under the circumstances to<br>enforce the contractual obligation to perform the functions. An insurer mayPage No. 2comply with its obligation to make reasonable inquiry by doing all of the<br>following:(1)The insurer annually obtains a certification from a third-party senior<br>manager who has responsibility for the delegated functions that the<br>manager has a reasonable basis to represent, and does represent, that<br>the third party is performing the required functions; and(2)The insurer, based on reasonable selection criteria, periodically selects<br>third parties contracting under subdivision c for a review to determine<br>whether the third parties are performing the required functions.Theinsurer shall perform those procedures to conduct the review that are<br>reasonable under the circumstances.e.An insurer that contracts with a third party pursuant to subdivision c and that<br>complies with the requirements to supervise in subdivision d has fulfilled its<br>responsibilities under subdivision a.f.An insurer, general agent, or independent agency is not required by<br>subdivision a or b to:(1)Review, or provide for review of, all insurance producer solicited<br>transactions; or(2)Includeinitssystemofsupervisionaninsuranceproducer'srecommendations to consumers of products other than the annuities<br>offered by the insurer, general agent, or independent agency.g.A general agent or independent agency contracting with an insurer pursuant to<br>subdivision c shall promptly, when requested by the insurer pursuant to<br>subdivision d, give a certification as described in subdivision d or give a clear<br>statement that it is unable to meet the certification criteria.h.A person may not provide a certification under paragraph 1 of subdivision d<br>unless:(1)The person is a senior manager with responsibility for the delegated<br>functions; and(2)The person has a reasonable basis for making the certification.5.Compliance with the financial industry regulatory authority conduct rules pertaining<br>to suitability satisfies the requirements under this section for the recommendation of<br>annuities registered under the Securities Act of 1933 [15 U.S.C. 77a et seq.] or rules<br>or regulations adopted under that act. However, nothing in this subsection limits the<br>insurance commissioner's ability to enforce the provisions of this chapter.6.This chapter does not preempt, supersede, or limit any provision of any securities<br>law of this state or any rule, order, or notice issued thereunder.26.1-34.2-04. Mitigation of responsibility - Penalty.1.The commissioner may order:a.An insurer to take reasonably appropriate corrective action for a consumer<br>harmed by the insurer's, or by its insurance producer's, violation of this chapter;b.An insurance producer to take reasonably appropriate corrective action for a<br>consumer harmed by the insurance producer's violation of this chapter; andPage No. 3c.A general agency or independent agency that employs or contracts with an<br>insurance producer to sell, or solicit the sale of, annuities to consumers, to take<br>reasonably appropriate corrective action for a consumer harmed by the<br>insurance producer's violation of this chapter.2.Any applicable penalty under section 26.1-01-03.3 for a violation of subsection 1 or 2<br>or subdivision b of subsection 3 of section 26.1-34.2-03 may be reduced or<br>eliminated, according to a schedule adopted by the commissioner, if corrective<br>action for the consumer was taken promptly after a violation was discovered.26.1-34.2-05. Recordkeeping.1.Insurers, general agents, independent agencies, and insurance producers shall<br>maintain or be able to make available to the commissioner a record of the<br>information collected from the consumer and other information used in making the<br>recommendations that were the basis for insurance transactions for ten years after<br>the insurance transaction is completed by the insurer. An insurer is permitted, but is<br>not required, to maintain documentation on behalf of an insurance producer.2.Records required to be maintained by this chapter may be maintained in paper,<br>photographic, microprocess, magnetic, mechanical, or electronic media, or by any<br>process that accurately reproduces the actual document.Page No. 4Document Outlinechapter 26.1-34.2 annuity transaction practices]]>