Section 760IAC1-72-4. Duties of insurers and of insurance producers

   (a) In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to his or her:

(1) investments and other insurance products; and

(2) financial situation and needs.

  (b) Before the execution of a purchase or exchange of an annuity resulting from a recommendation, an insurance producer, or an insurer where no producer is involved, shall make reasonable efforts to obtain information concerning the following:

(1) The consumer's:

(A) financial status;

(B) tax status; and

(C) investment objectives.

(2) Other information used or considered to be reasonable by the insurance producer, or the insurer where no producer is involved, in making recommendations to the consumer.

  (c) Except as provided in subsection (b), neither an insurance producer, nor an insurer where no producer is involved, shall have any obligation to a consumer under subsection (a) related to any recommendation if a consumer does any of the following:

(1) Refuses to provide relevant information requested by the insurer or insurance producer.

(2) Decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance producer.

(3) Fails to provide complete or accurate information.

  (d) An insurer or insurance producer's recommendation subject to subsection (c) shall be reasonable under all the circumstances actually known to the insurer or insurance producer at the time of the recommendation.

  (e) An insurer shall:

(1) assure that a system to supervise recommendations that is reasonably designed to achieve compliance with this rule is established and maintained by complying with the standards set forth in subsections (g) and (h); or

(2) establish and maintain such a system, including, but not limited to:

(A) maintaining written procedures; and

(B) conducting periodic reviews of its records that are reasonably designed to assist in detecting and preventing violations of this rule.

  (f) A general agent and independent agency shall:

(1) adopt a system established by an insurer to supervise recommendations of its insurance producers that is reasonably designed to achieve compliance with this rule; or

(2) establish and maintain such a system, including, but not limited to:

(A) maintaining written procedures; and

(B) conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this rule.

  (g) An insurer may contract with a third party, including a general agent or independent agency, to establish and maintain a system of supervision as required by subsection (e) with respect to insurance producers under contract with or employed by the third party. An insurer shall make reasonable inquiry to assure that the third party contracting under this section is performing the functions required under subsection (e) and shall take such action as is reasonable under the circumstances to enforce the contractual obligation to perform the functions. An insurer may comply with its obligation to make reasonable inquiry by doing all of the following:

(1) The insurer annually obtains a certification from a third party senior manager who has responsibility for the delegated functions that the manager has a reasonable basis to represent, and does represent, that the third party is performing the required functions.

(2) The insurer, based on reasonable selection criteria, periodically selects third parties for a review to determine whether the third parties are performing the required functions. The insurer shall perform those procedures to conduct the review that are reasonable under the circumstances.

  (h) An insurer that:

(1) contracts with a third party under subsection (g); and

(2) complies with the requirements to supervise therein;

shall have fulfilled its responsibilities under subsection (e).

  (i) An insurer, general agent, or independent agency is not required by subsection (e) or (f) to:

(1) review, or provide for review of, all insurance producer solicited transactions; or

(2) include in its system of supervision an insurance producer's recommendations to consumers of products other than the annuities offered by the insurer, general agent, or independent agency.

  (j) A general agent or independent agency contracting with an insurer under subsection (g) shall promptly, when requested by the insurer, give a:

(1) certification; or

(2) clear statement;

that it is unable to meet the certification criteria.

  (k) No person may provide a certification under subsection (g) unless the person:

(1) is a senior manager with responsibility for the delegated functions; and

(2) has a reasonable basis for making the certification.

  (l) Compliance with the National Association of Securities Dealers Conduct Rules pertaining to suitability shall satisfy the requirements under this section for the recommendation of variable annuities. However, nothing in this subsection shall limit the insurance commissioner's ability to enforce the provisions of this rule. (Department of Insurance; 760 IAC 1-72-4; filed Feb 16, 2006, 8:25 a.m.: 29 IR 2193, eff Jul 1, 2006; filed Jan 27, 2009, 9:51 a.m.: 20090225-IR-760080058FRA; readopted filed Nov 20, 2015, 9:25 a.m.: 20151216-IR-760150341RFA)