# Title 26.1 — Insurance

## Chapter 26.1-34.2 — Annuity Transaction Practices

### § 26.1-34.2-01. Exemptions.

Unless otherwise specifically included, this chapter does not apply to recommendations
involving:
1. Direct response solicitations if there is no recommendation based on information
collected from the consumer pursuant to this chapter; and
2. Contracts used to fund:
a. An employee pension or welfare benefit plan that is covered by the Employee
Retirement and Income Security Act;
b. A plan described by section 401(a), 401(k), 403(b), 408(k), or 408(p) of the
Internal Revenue Code, as amended, if established or maintained by an
employer;
c. A government or church plan defined in section 414 of the Internal Revenue
Code, a government or church welfare benefit plan, or a deferred compensation
plan of a state or local government or tax-exempt organization under section 457
of the Internal Revenue Code;
d. A nonqualified deferred compensation arrangement established or maintained by
an employer or plan sponsor;
e. Settlements of or assumptions of liabilities associated with personal injury
litigation or a dispute or claim resolution process; or
f. Formal prepaid funeral contracts.
### § 26.1-34.2-01.1. Scope.

This chapter applies to a sale or recommendation of an annuity. This chapter may not be
construed to create or imply a private cause of action for a violation of this chapter or to subject
a producer to civil liability under the best interest standard of care outlined in section
### § 26.1-34.2-02. Definitions.

1. "Annuity" means an annuity that is an insurance product under state law which is
individually solicited, whether the product is classified as an individual or group
annuity.
2. "Cash compensation" means a 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 or intermediary or directly
from the consumer.
3. "Comparable standards":
a. With respect to a broker-dealer and registered representative of a broker-dealer,
applicable federal securities and exchange commission and financial industry
regulatory authority rules pertaining to best interest obligations and supervision of
annuity recommendations and sales, including Regulation Best Interest
b. With respect to an investment adviser registered under federal or state securities
laws or an investment adviser representative, the fiduciary duties and all other
requirements imposed on such investment advisers or investment adviser
representatives by contract or under the federal Investment Advisers Act of 1940
[15 U.S.C. 80b-1 et seq.] or applicable state securities law, including, the form
ADV and interpretations; and
c. With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions,
and all other requirements attendant to such status under the federal Employee
Retirement Income Security Act of 1974 [29 U.S.C. 1001 et seq.] or the federal
Internal Revenue Code as amended.

4. "Consumer profile information" means 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 time horizon;
i. Existing assets or financial products, including investment, annuity, and insurance
holdings;
j. Liquidity needs;
k. Liquid net worth;
l. Risk tolerance, including willingness to accept nonguaranteed elements in the
annuity;
m. Financial resources used to fund the annuity; and
n. Tax status.
5. "Continuing education credit" means one continuing education credit as provided for
under section 26.1-26-31.1.
6. "Continuing education provider" means an individual or entity approved to offer
continuing education courses pursuant to section 26.1-26-31.1.
7. "Financial professional" means a producer that is regulated and acting as:
a. A broker-dealer registered under federal or state securities laws or a registered
representative of a broker-dealer;
b. An investment adviser registered under federal or state securities laws or an
investment adviser representative associated with the federal or state registered
investment adviser; or
c. A plan fiduciary under section 3(21) of the federal Employee Retirement Income
Security Act of 1974 [29 CFR 2510.3-21] or fiduciary under section 4975(e)(3) of
the Internal Revenue Code [26 U.S.C. 4975(e)(3)] as amended.
8. "Insurer" means a company required to be licensed under the laws of this state to
provide insurance products, including annuities.
9. "Intermediary" means 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.
10. "Material conflict of interest" means a financial interest of the producer in the sale of an
annuity which a reasonable person would expect to influence the impartiality of a
recommendation. The term does not include cash compensation or noncash
compensation.
11. "Noncash compensation" means any form of compensation that is not cash
compensation, including health insurance, office rent, office support, and retirement
benefits.
12. "Nonguaranteed elements" means the premiums, credited interest rates, including a
bonus, benefits, values, dividends, noninterest based credits, charges, or elements of
formulas used to determine any of these which are subject to company discretion and
are not guaranteed at issue. An element is considered nonguaranteed if any of the
underlying nonguaranteed elements are used in the element's calculation.
13. "Producer" means an individual or entity required to be licensed under the laws of this
state to sell, solicit, or negotiate insurance, including annuities. The term includes an
insurer if no producer is involved.
14. "Recommendation" means advice provided by a producer to an individual consumer
which was intended to result or results in a purchase, a replacement, or an exchange
of an annuity in accordance with that advice. The 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.
15. "Replacement" means 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 or 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.
### § 26.1-34.2-03. Duties of insurers and insurance producers.

1. A producer, if 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. A producer has acted in the best interest of the consumer if the
producer has satisfied the following obligations regarding care, disclosure, conflict of
interest, and documentation:
a. (1) The producer, in making a recommendation, shall 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) The requirements under this subdivision include making reasonable efforts
to obtain consumer profile information from the consumer before the
recommendation of an annuity.
(3) The requirements under this subdivision require a producer to consider the
types of products the producer is authorized and licensed to recommend or
sell which 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 must be held to standards applicable to
producers with similar authority and licensure.
(4) The requirements under this subdivision do not create a fiduciary obligation
or relationship and only create a regulatory obligation as established in this
chapter.
(5) The consumer profile information, characteristics of the insurer, and product
costs, rates, benefits, and features are those factors generally relevant in
making a determination whether an annuity effectively addresses the
consumer's financial situation, insurance needs, and financial objectives, but
the level of importance of each factor under the care obligation of this
paragraph may vary depending on the facts and circumstances of a
particular case. However, each factor may not be considered in isolation.

(6) The requirements under this subdivision include having 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.
(7) The requirements under this subdivision apply to the particular annuity as a
whole and the underlying subaccounts to which funds are allocated at the
time of purchase or exchange of an annuity, and riders and similar producer
enhancements, if any.
(8) The requirements under this subdivision do not mean the annuity with the
lowest one-time or multiple occurrence compensation structure necessarily
must be recommended.
(9) The requirements under this subdivision do not mean the producer has
ongoing monitoring obligations under the care obligation under this
paragraph, although such an obligation may be owed separately under the
terms of a fiduciary, consulting, investment advising, or financial planning
agreement between the consumer and the producer.
(10) In the case of an exchange or replacement of an annuity, the producer shall
consider the whole transaction, which includes taking into consideration
whether:
(a) The consumer will incur a surrender charge; be subject to the
commencement of a new surrender period; lose existing benefits,
such as death, living, or other contractual benefits; or be subject to
increased fees, investment advisory fees, or charges for riders and
similar product enhancements;
(b) The replacing product would benefit the consumer substantially in
comparison to the replaced product over the life of the product; and
(c) The consumer has had another annuity exchange or replacement and,
in particular, an exchange or replacement within the preceding sixty
months.
(11) This chapter may not be construed to require a producer to obtain a license
other than a producer license with the appropriate line of authority to sell,
solicit, or negotiate insurance in this state, including a securities license, in
order to fulfill the duties and obligations contained in this chapter; provided
the producer does not give advice or provide services that are otherwise
subject to securities laws or engage in any other activity requiring other
professional licenses.
b. (1) Before the recommendation or sale of an annuity, the producer prominently
shall disclose to the consumer on a form substantially similar to a model
form designed by the insurance department:
(a) A description of the scope and terms of the relationship with the
consumer and the role of the producer in the transaction;
(b) An affirmative statement on whether the producer is licensed and
authorized to sell the following products:
[1] Fixed annuities;
[2] Fixed indexed annuities;
[3] Variable annuities;
[4] Life insurance;
[5] Mutual funds;
[6] Stocks and bonds; and
[7] Certificates of deposit;
(c) An affirmative statement describing the insurers the producer is
authorized, contracted, or appointed, or otherwise able to sell
insurance products for, using the following descriptions:
[1] One insurer;
[2] From two or more insurers; or

[3] From two or more insurers although primarily contracted with one
insurer;
(d) A description of the sources and types of cash compensation and
noncash compensation to be received by the producer, including
whether the producer is to be compensated for the sale of a
recommended annuity by commission as part of premium or other
remuneration received from the insurer, intermediary, or other
producer or by fee as a result of a contract for advice or consulting
services; and
(e) A notice of the consumer's right to request additional information
regarding cash compensation described in subparagraph d.
(2) Upon request of the consumer or the consumer's designated representative,
the producer shall disclose:
(a) A reasonable estimate of the amount of cash compensation to be
received by the producer, which may be stated as a range of amounts
or percentages; and
(b) Whether the cash compensation is a one-time or multiple occurrence
amount, and if a multiple occurrence amount, the frequency and
amount of the occurrence, which may be stated as a range of
amounts or percentages.
(3) Before or at the time of the recommendation or sale of an annuity, the
producer must have a reasonable basis to believe the consumer has been
informed of various features of the annuity, such as the potential surrender
period and surrender charge; potential tax penalty if the consumer sells,
exchanges, surrenders or annuitizes the annuity; mortality and expense
fees; investment advisory fees; annual fees; potential charges for and
features of riders or other options of the annuity; limitations on interest
returns; potential changes in nonguaranteed elements of the annuity;
insurance and investment components; and market risk.
c. 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.
d. At the time of recommendation or sale the producer shall:
(1) Make a written record of any recommendation and the basis for the
recommendation subject to this chapter;
(2) Obtain a consumer-signed statement on a form substantially similar to a
model form established by the insurance department:
(a) A customer's refusal to provide the consumer profile information, if
any; and
(b) A customer's understanding of the ramifications of not providing the
customer's consumer profile information or providing insufficient
consumer profile information; and
(3) Obtain a consumer-signed statement on a form substantially similar to a
model form established by the insurance department acknowledging the
annuity transaction is not recommended if a customer decides to enter an
annuity transaction that is not based on the producer's recommendation.
e. A requirement applicable to a producer under this subsection applies 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.
2. a. Except as provided under subdivision b, a producer does not have an obligation
to a consumer under subsection 1 or 3 related to any annuity transaction if:

(1) A recommendation was not made;
(2) A recommendation was made and was later found to have been prepared
based on materially inaccurate information provided by the consumer;
(3) A consumer refuses to provide relevant consumer profile information and
the annuity transaction is not recommended; or
(4) A consumer decides to enter an annuity transaction that is not based on a
recommendation of the producer.
b. An insurer's issuance of an annuity subject to subdivision a must be reasonable
under all the circumstances actually known to the insurer at the time the annuity
is issued.
3. a. Except as permitted under subdivision b, an insurer may not issue an annuity
recommended to a consumer unless there is a reasonable basis to believe the
annuity would effectively address the particular consumer's financial situation,
insurance needs, and financial objectives based on the consumer's consumer
profile information.
b. An insurer shall establish and maintain a supervision system that is reasonably
designed to achieve the insurer's and the insurer's producers' compliance with
this chapter, including the following:
(1) The insurer shall establish and maintain reasonable procedures to inform
the insurer's producers of the requirements of this chapter and shall
incorporate the requirements of this chapter into relevant producer training
manuals.
(2) The insurer shall establish and maintain standards for insurance producer
product training and shall maintain reasonable procedures to require the
insurer's producers to comply with the requirements of section
26.1-34.2-03.1.
(3) The insurer shall provide product-specific training and training materials that
explain all material features of the insurer's annuity products to the insurer's
producers.
(4) The insurer shall establish and maintain procedures for the review of each
recommendation before issuance of an annuity which are designed to
ensure there is a reasonable basis to determine that the recommended
annuity effectively would address the particular consumer's financial
situation, insurance needs, and financial objectives. Such review procedures
may apply a screening system for the purpose of identifying selected
transactions for additional review and may be accomplished electronically or
through other means, including physical review. Such an electronic or other
system may be designed to require additional review only of those
transactions identified for additional review by the selection criteria.
(5) The insurer shall establish and maintain reasonable procedures to detect
recommendations that are not in compliance with this paragraph and
paragraphs 1, 2, and 4. This may include confirmation of the consumer
profile information, systematic customer surveys, producer and consumer
interviews, confirmation letters, producer statements or attestations, and
programs of internal monitoring. This paragraph does not prevent an insurer
from complying with this paragraph by applying sampling procedures or by
confirming the consumer profile information or other required information
under this section after issuance or delivery of the annuity.
(6) The insurer shall establish and maintain reasonable procedures to assess,
before or upon issuance or delivery of an annuity, whether a producer has
provided to the customer the information required to be provided under this
section.
(7) The insurer shall establish and maintain reasonable procedures to identify
and address suspicious consumer refusals to provide consumer profile
information.

(8) The insurer shall establish and maintain reasonable procedures to identify
and eliminate any sales contests, sales quotas, bonuses, and noncash
compensation that are based on the sales of specific annuities within a
limited period of time. The requirements of this subdivision are not intended
to prohibit the receipt of health insurance, office rent, office support,
retirement benefits, or other employee benefits by employees as long as
those benefits are not based on the volume of sales of a specific annuity
within a limited period of time.
(9) Annually, the insurer shall provide a written report to senior management,
including to the senior manager responsible for audit functions, which details
a review, with appropriate testing, reasonably designed to determine the
effectiveness of the supervision system, the exceptions found, and
corrective action taken or recommended, if any.
c. (1) This subsection does not restrict an insurer from contracting for
performance of a function, including maintenance of procedures, required
under this subdivision. An insurer is responsible for taking appropriate
corrective action and may be subject to sanctions and penalties pursuant to
section 26.1-34.2-04, regardless of whether the insurer contracts for
performance of a function and regardless of the insurer's compliance with
paragraph 2.
(2) An insurer's supervision system under this subsection must include
supervision of contractual performance under this subsection. This includes
the following:
(a) Monitoring and, as appropriate, conducting audits to assure that the
contracted function is properly performed; and
(b) Annually, obtaining a certification from a senior manager who has
responsibility for the contracted function that the manager has a
reasonable basis to represent, and does represent, that the function is
properly performed.
d. An insurer is not required to include in the insurer's system of supervision:
(1) A producer's recommendations to consumers of products other than the
annuities offered by the insurer; or
(2) Include consideration of or comparison to options available to the producer
or compensation relating to those options other than annuities or other
products offered by the insurer.
4. A producer or an insurer may not dissuade, or attempt to dissuade, a consumer from:
a. Responding truthfully to an insurer's request for confirmation of the consumer
profile information;
b. Filing a complaint; or
c. Cooperating with the investigation of a complaint.
5. a. Recommendations and sales of annuities made in compliance with comparable
standards must satisfy the requirements under this chapter. This subsection
applies to recommendations and sales of annuities made by financial
professionals in compliance with business rules, controls, and procedures that
satisfy a comparable standard even if the standard would not otherwise apply to
the product or recommendation at issue. However, this subsection does not limit
the insurance commissioner's ability to enforce, including investigate, this
chapter. This subdivision does not limit the insurer's obligation to comply with
subdivision a of subsection 3 although the insurer may base the insurer's analysis
on information received from either the financial professional or the entity
supervising the financial professional.
b. For subdivision a to apply, an insurer shall:
(1) Monitor relevant conduct of the financial professional seeking to rely upon
subdivision a or the entity responsible for supervising the financial
professional, such as the financial professional's broker-dealer or an

investment advisor registered under federal or state securities laws using
information collected in the normal course of an insurer's business; and
(2) Provide to the entity responsible for supervising the financial professional
seeking to rely on subdivision a, such as the financial professional's broker-
dealer or investment advisor registered under federal or state securities
laws, information and reports that are reasonably appropriate to assist the
entity to maintain its supervision system.
### § 26.1-34.2-03.1. Producer training.

1. A producer may not solicit the sale of an annuity product unless the producer has
adequate knowledge of the product to recommend the annuity and the producer is in
compliance with the insurer's standards for product training. A producer may rely on
insurer-provided product-specific training standards and materials to comply with this
subsection.
2. a. A producer who engages in the sale of annuity products shall complete a
one-time, four-hour training course.
b. The training required under this subsection must include information on the
following topics:
(1) The types of annuities and various classifications of annuities;
(2) Identification of the parties to an annuity;
(3) How fixed, variable, and indexed annuity contract provisions affect
consumers;
(4) The application of income taxation of qualified and nonqualified annuities;
(5) The primary uses of annuities; and
(6) Appropriate standards of conduct, sales practices, replacement, and
disclosure requirements.
c. Providers of courses intended to comply with this subsection shall 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.
d. A producer who has completed an annuity training course approved by the
insurance department before January 1, 2022, within six months after such date,
shall complete either:
(1) A new four-credit training course approved by the insurance department
after January 1, 2022; or
(2) An additional one-time, one-credit training course approved by the
insurance department and provided by an insurance department-approved
education provider on appropriate sales practices, replacement, and
disclosure requirements under this chapter.
e. Providers of annuity training shall issue certificates of completion.
f. The satisfaction of the training requirements of another state which are
substantially similar to the provisions of this subsection are deemed to satisfy the
training requirements of this subsection in this state.
g. The satisfaction of the components of the training requirements of a course with
components substantially similar to the provisions of this subsection is deemed to
satisfy the training requirements of this subsection in this state.
h. An insurer shall verify that the producer has completed the annuity training
course required under this subsection before allowing the producer to sell an
annuity product for that insurer. An insurer may satisfy the insurer's responsibility
under this subsection by obtaining certificates of completion of the training course
or obtaining reports from a reasonably reliable commercial database vendor that
has a reporting arrangement with insurance education providers.

### § 26.1-34.2-04. Compliance mitigation - Enforceability - Penalty.

1. An insurer is responsible for compliance with this chapter. If a violation occurs, either
because of the action or inaction of the insurer or the insurer's producer, the
commissioner may order:
a. An insurer to take reasonably appropriate corrective action for any consumer
harmed by a failure to comply with this chapter by the insurer or by the producer;
b. A general agency, independent agency, or the producer to take reasonably
appropriate corrective action for any consumer harmed by the producer's
violation of this chapter; and
c. Appropriate penalties and sanctions.
2. Any applicable penalty under section 26.1-01-03.3 for a violation of this chapter may
be reduced or eliminated, according to a schedule adopted by the commissioner, if
corrective action for the consumer was taken promptly after a violation was
discovered.
3. The authority to enforce compliance with this section is vested exclusively with the
commissioner.
### § 26.1-34.2-05. Recordkeeping.

1. Insurers, general agents, independent agencies, and producers shall maintain or be
able to make available to the commissioner a record of the information collected from
the consumer, disclosures made to the consumer, including summaries of oral
disclosures, and other information used in making the recommendations that were the
basis for insurance transactions for ten years after the insurance transaction is
completed by the insurer. An insurer is permitted, but is not required, to maintain
documentation on behalf of a producer.
2. Records required to be maintained by this chapter may be maintained in paper,
photographic, microprocess, magnetic, mechanical, or electronic media, or by any
process that accurately reproduces the actual document.
