The Indiana Department of Insurance has updated its requirements for recommendation and sale of annuities based on the National Association of Insurance Commissioners’ model law.

Effective March 9, 2024, producers, when making a recommendation of an annuity, must act in the consumer’s best interest under the circumstances known when the recommendation is made, without placing the company’s or producer’s financial interest ahead of the consumer’s.

To meet this requirement a producer must exercise reasonable diligence, care and skill to know the consumer’s financial objectives, understand the available recommendation options, have a reasonable basis to believe the recommended options effectively addresses the consumer’s financial situation and communicate the basis of the recommendations.

The producer must make reasonable efforts to obtain consumer profile information before an annuity is recommended and consider the types of products that the producer is licensed to sell that address the consumer’s financial situation, insurance needs and financial objectives.

Additionally, the producer must consider the consumer profile information, company characteristics, product costs, rates, benefits and features in determining whether an annuity effectively addresses the consumer’s financial situation, insurance needs and financial objectives. The importance level of each of these care obligation factors can vary depending on a case’s facts and circumstances. Each factor must not be considered in isolation.

The producer must have a reasonable basis to believe that their client would benefit from certain features of the annuity, such as annuitization, death or living benefit or other insurance-related features.

In the case of an exchange or replacement of an annuity, the agent must consider the whole transaction, which includes considering whether the consumer will incur possible adverse effects such as surrender charges, new surrender period, the loss of benefits or be subject to increase fees.

The producer must also consider if the replacing product would substantially benefit the consumer compared to the replaced product and if the consumer has had another annuity exchange or replacement within the preceding 60 months.

A producer is not required to obtain a license other than a producer license with the proper line of authority to sell insurance in Indiana to meet the obligations set out in this update. This includes, but is not limited to, any securities license, however the producer must not offer advice or provide services otherwise subject to securities laws, or engage in other activities necessitating additional professional licenses.

Before recommending or selling an annuity, the producer must prominently disclose certain information to the consumer on a form substantially similar to this.

This information includes description of the relationship’s scope and terms with the consumer and the producer’s role in the transaction, an affirmative statement on what products the producer is licensed and authorized to sell and to which carriers the producer is contracted. The producer must also describe the sources and types of compensation that the producer can receive and disclose a reasonable estimate of the amount of compensation to be received by the producer.

On request of the consumer or the designated representative, the producer must disclose a reasonable estimate of the cash compensation that the producer will receive, which can be set out as either a range of amounts or percentages; and whether the compensation is a one-time compensation or multiple occurrence amount.

Either before or at the time the producer recommends or sells an annuity, the producer must have a reasonable basis to believe that the consumer has been informed of the annuity’s features, which includes potential surrender period and surrender charge; potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity; any annual fees; limitations on interest returns, potential charges for riders or other options of the annuity and similar costs.

The producer must identify and avoid, or reasonably manage and disclose, any material conflicts of interest such as conflicts related to an ownership interest.

At the time of recommendation or sale, the producer must make a written record on the basis for the recommendation based partially on information supplied by the consumer. If the consumer does not elect to provide personal information, the producer must obtain a consumer-signed statement similar to this. 

Should the consumer decide to purchase an annuity not based on the producer’s recommendation, the producer must obtain a consumer-signed statement on a form substantially similar to this.

The requirements associated with a best-interest obligation to a consumer extends to any producer who “exercised material control or influence in making a recommendation” and who have or will receive direct compensation resulting from the recommendation or sale even if the producer has had no direct contact with the consumer. Providing or delivering marketing or educational materials, product wholesaling or other back-office product support and general producer supervision are not considered to be “material control or influence.”

A producer has no best-interest obligations to a consumer related to an annuity transaction if no recommendation is made, a recommendation was made prepared on information from the consumer that was materially inaccurate, the consumer declines to provide relevant profile information and the annuity transaction is not recommended or the consumer decides to enter into an annuity transaction that is not based on a producer recommendation.

Neither the insurance carrier nor an agent can dissuade, or attempt to dissuade, a consumer from truthfully responding to the company’s request for confirmation of the consumer profile information, filing a complaint or cooperating with the investigation of a complaint.

Producer Training

An insurance producer may not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend and the producer is in compliance with the company's standards for product training.

A producer who engages in the sale of annuity products must complete a one-time, four-hour training course approved by the Department of Insurance.

Producers who hold a life insurance line of authority on July 1, 2024, and who desire to sell annuities must complete this training mandate by September 9, 2025. Individuals who obtain a life insurance line of authority on or after March 9, 2024, may not engage in the sale of annuities until the annuity training course has been completed.

The annuity training course or courses must cover the following topics:

• The types of annuities and various classifications of annuities;
• Identification of the parties to an annuity;
• How product specific annuity contract features affect consumers;
• The application of income taxation of qualified and non-qualified annuities;
• The primary uses of annuities; and
• Appropriate standard of conduct, sales practices, replacement and disclosure requirements.

Training providers must cover all topics listed in the prescribed outline and may not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer's products. Additional topics may be offered in conjunction with and in addition to the required outline.

An agent who has completed a Division-approved annuity training course before July 1, 2024, must, by January 1, 2025, complete either a new 4-hour training course or an additional one-time, one-credit training course approved by the department of insurance and provided by the Division-approved education provider on appropriate sales practices, replacement and disclosure mandates.

The satisfaction of the training requirements of another state that are substantially similar to the provisions listed above are deemed to satisfy the training mandates of Indiana.

The satisfaction of the components of the training mandates of any course with components substantially similar to the provisions listed above are deemed to satisfy the training mandates of Indiana.

Producers must maintain or make available to the Commissioner for five years records of the information collected from the consumer, including disclosures made to the consumer, summaries of oral disclosures and other information used in making the annuity recommendations.

If you have a hierarchy of producers, you must share this e-mail with any producers who may not have received it.

If you have questions regarding this compliance update, please contact the Indiana Department of Financial Regulation at (800) 457-8283 or on-line at https://faqs.in.gov/hc/en-us/requests/new.