I hope that everyone enjoyed the recent holidays as much as I did. As we welcome in the start of 2012, many new legislative and regulatory changes will be going into effect this week (January 1st is a very popular effective date). Thinking about what’s new for the year ahead reminds me that California seniors will now be protected by new suitability requirements.

In September, California Governor Jerry Brown signed AB 689 into law. The new law requires insurers to verify that an annuity purchase, replacement or exchange is reasonably suitable for the consumer based on an evaluation of the individual’s age, income, liquidity needs and financial objectives, among other factors. It also requires that a consumer receive a tangible net benefit from the purchase of the annuity. The DOI can revoke an agent’s license, impose fines, and/or order that lost funds be restored to the consumer when an unsuitable annuity is sold.

The new requirements derive from the NAIC’s Suitability in Annuity Transactions Model Regulation (Model 275) requiring insurers to establish a system to supervise recommendations so that the insurance needs and financial objectives of consumers are appropriately addressed. Also, the new law is the state’s response to the Dodd-Frank Wall Street Reform and Consumer Protection Act where states must adopt annuity suitability standards similar to those in Model 275 or lose its right to regulate products such as indexed annuities.

Prior to January 1st, California required annuity sellers to give consumers replacing annuities at least 30 days to get their money back, and it also prohibited annuity sellers from using materially inaccurate presentations to recommend that senior citizens buy unnecessary replacement annuities. However, there was no law requiring an insurer or an agent to determine whether an annuity was suitable for a consumer before recommending it.

Ensuring protection for seniors, a rapidly growing population, is a good way to start the New Year.

Editor’s Recommendation: Stay on top of changing life insurance and annuity laws with NILS INsource.

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