ENTITLED, An Act to revise the suitability requirements for annuities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA:
Section 1. That § 58-33A-16 be amended to read as follows:
58-33A-16. 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 if 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 the consumer's investments and other insurance products and as to the consumer's financial
situation and needs and that there is a reasonable basis to believe all of the following:
(1) The consumer has been reasonably 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, potential charges for and features of riders, limitations on
interest returns, insurance and investment components, and market risk;
(2) The consumer would benefit from certain features of the annuity, such as tax-deferred
growth, annuitization, or death or living benefit;
(3) The particular annuity as a whole, the underlying subaccounts to which funds are
allocated at the time of purchase or exchange of the annuity, and riders and similar
product enhancements, if any, are suitable (and in the case of an exchange or replacement,
the transaction as a whole is suitable) for the particular consumer based on the consumer's
suitability information; and
(4) In the case of an exchange or replacement of an annuity, the exchange or replacement is
suitable including 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 consumer would benefit from product enhancements and improvements; and
(c) The consumer has had another annuity exchange or replacement and, in particular,
an exchange or replacement within the preceding thirty-six months.
Section 2. That § 58-33A-17 be amended to read as follows:
58-33A-17. Prior to the execution of a purchase or exchange of an annuity resulting from a
recommendation, an insurance producer, or an insurer if no producer is involved, shall make
reasonable efforts to obtain the consumer's suitability information. Suitability information includes:
(2) Annual income;
(3) Financial situation and needs, including the financial resources used for the funding of the
(4) Financial experience;
(5) Financial objectives;
(6) Intended use of the annuity;
(7) Financial time horizon;
(8) Existing assets, including investment and life insurance holdings;
(9) Liquidity needs;
(10) Liquid net worth;
(11) Risk tolerance; and
(12) Tax status.
Section 3. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
Except as permitted under §§ 58-33A-18 and 58-33A-19, no insurer may issue an annuity
recommended to a consumer unless there is a reasonable basis to believe the annuity is suitable based
on the consumer's suitability information.
Section 4. That § 58-33A-18 be amended to read as follows:
58-33A-18. Except as provided pursuant to § 58-33A-19, no insurance producer nor any insurer
has any obligation to a consumer under § 58-33A-16 related to any recommendation if:
(1) A consumer refuses to provide relevant suitability information and the annuity transaction
is not recommended;
(2) A consumer decides to enter into an insurance transaction that is not based on a
recommendation of the insurer or insurance producer;
(3) A recommendation was made and was later found to have been prepared based on
materially inaccurate information provided by the consumer; or
(4) No recommendation is made.
Section 5. That § 58-33A-19 be amended to read as follows:
58-33A-19. An insurer's issuance of an annuity subject to § 58-33A-16 shall be reasonable under
all the circumstances actually known to the insurer at the time the annuity is issued.
Section 6. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
An insurance producer or, if no insurance producer is involved, the responsible insurer
representative, shall at the time of sale:
(1) Make a record of any recommendation subject to § 58-33A-16;
(2) Obtain a customer signed statement documenting a customer's refusal to provide
suitability information, if any; and
(3) Obtain a customer signed statement acknowledging that an annuity transaction is not
recommended if a customer decides to enter into an annuity transaction that is not based
on the insurance producer's or insurer's recommendation.
Section 7. That § 58-33A-20 be amended to read as follows:
58-33A-20. An insurer shall establish a system to supervise recommendations that is reasonably
designed to achieve compliance with §§ 58-33A-13 to 58-33A-27, inclusive, and this Act, including:
(1) The insurer shall maintain reasonable procedures to inform its insurance producers of the
requirements of this Act and shall incorporate the requirements of this regulation into
relevant insurance producer training manuals;
(2) The insurer shall establish standards for insurance producer product training and shall
maintain reasonable procedures to require its insurance producers to comply with the
requirements of sections 11 to 13, inclusive, of this Act;
(3) The insurer shall provide product-specific training and training materials that explain all
material features of its annuity products to its insurance producers;
(4) The insurer shall maintain procedures for review of each recommendation prior to
issuance of an annuity that are designed to ensure that there is a reasonable basis to
determine that a recommendation is suitable. 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 maintain reasonable procedure to detect recommendations that are not
suitable. This may include confirmation of consumer suitability information, systematic
customer surveys, interviews, confirmation letters, and programs of internal monitoring.
Nothing in this subdivision prevents an insurer from complying with this subdivision by
applying sampling procedures or by confirming suitability information after issuance or
delivery of the annuity; and
(6) The insurer shall annually provide a report to senior management, including to the senior
manager responsible for audit functions, that 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.
Section 8. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
Nothing in § 58-33A-20 or this section restricts an insurer from contracting for performance of
a function required under § 58-33A-20, including maintenance of procedures. An insurer is
responsible for taking appropriate corrective action and may be subject to sanctions and penalties
pursuant to section 14 of this Act regardless of whether the insurer contracts for performance of a
function and regardless of the insurer's compliance with this section.
An insurer's supervision system under § 58-33A-20 and this section shall include supervision of
contractual performance under this section. This includes the following:
(1) Monitoring and, as appropriate, conducting audits to assure that the contracted function
is properly performed; and
(2) 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.
An insurer is not required to include in its system of supervision an insurance producer's
recommendations to consumers of products other than the annuities offered by the insurer.
Section 9. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
No insurance producer may dissuade, or attempt to dissuade, a consumer from:
(1) Truthfully responding to an insurer's request for confirmation of suitability information;
(2) Filing a complaint; or
(3) Cooperating with the investigation of a complaint.
Section 10. That § 58-33A-25 be amended to read as follows:
58-33A-25. If the director finds that the Conduct Rules of the Financial Industry Regulatory
Authority meet or exceed the requirements of §§ 58-33A-16 to 58-33A-24, inclusive, and this Act,
then any recommendations made for variable annuities that comply with the Conduct Rules of the
Financial Industry Regulatory Authority meet the requirements of §§ 58-33A-16 to 58-33A-24,
inclusive, and this Act. For this section to apply, an insurer shall:
(1) Monitor the Financial Industry Regulatory Authority member broker-dealer using
information collected in the normal course of an insurer's business; and
(2) Provide to the Financial Industry Regulatory Authority member broker-dealer information
and reports that are reasonably appropriate to assist the Financial Industry Regulatory
Authority member broker-dealer to maintain its supervision system.
Section 11. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
No insurance producer may solicit the sale of an annuity product unless the insurance producer
has adequate knowledge of the product to recommend the annuity and the insurance producer is in
compliance with the insurer's standards for product training. An insurance producer may rely on
insurer-provided product-specific training standards and materials to comply with this section. An
insurance producer who engages in the sale of annuity products shall complete a one-time four credit
training course approved by the director and provided by a director-approved education provider.
Any insurance producer who holds a life insurance line of authority on the effective date of this
Act and who desires to sell annuities shall complete the requirements of this section within six
months after the effective date of this Act. Any person who obtains a life insurance line of authority
on or after the effective date of this Act may not engage in the sale of annuities unless the annuity
training course required under this section has been completed. The minimum length of the training
required under this section shall be sufficient to qualify for at least four continuing education credits,
but may be longer. The training required under this section shall include information on the
(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 sales practices, replacement, and disclosure requirements.
Section 12. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
Each course provider intending to comply with section 11 of this Act shall cover all subjects
listed in section 11 of this Act. No provider of such course may present any marketing information
or provide training on sales techniques or provide specific information about a particular insurer's
products. Additional subjects may be offered in conjunction with and in addition to the required
subjects. Each provider of an annuity training course intending to comply with section 11 of this Act
shall register as a continuing education provider in this state and shall comply with the rules
applicable to insurance producer continuing education courses as set forth in chapter 58-30.
An annuity training course may be conducted and completed by classroom or self-study methods.
Each provider of annuity training shall comply with the reporting requirements and shall issue
certificates of completion in accordance with chapter 58-30. The satisfaction of the training
requirements of another state that are substantially similar to the provisions of this section satisfy the
training requirements of this section and section 11 of this Act.
Section 13. That chapter 58-33A be amended by adding thereto a NEW SECTION to read as
An insurer shall verify that an insurance producer has completed the annuity training course
required pursuant to section 11 of this Act before allowing the producer to sell an annuity product
for that insurer. An insurer may satisfy its responsibility under this section by obtaining certificates
of completion of the training course or obtaining reports provided by a director-sponsored database
system or vendor or from a reasonably reliable commercial database vendor that has a reporting
arrangement with an approved insurance education provider.
Section 14. That § 58-33A-26 be amended to read as follows:
58-33A-26. An insurer is responsible for compliance with §§ 58-33A-13 to 58-33A-27,
inclusive, and this Act. The director may order:
(1) An insurer to take reasonably appropriate corrective action for any consumer harmed by
the insurer's, or by its insurance producer's, violation of §§ 58-33A-13 to 58-33A-27,
(2) An insurance producer to take reasonably appropriate corrective action for any consumer
harmed by the insurance producer's violation of §§ 58-33A-13 to 58-33A-27, inclusive;
(3) A general agency or independent agency that employs or contracts with an insurance
producer to sell, or solicit the sale, of annuities to consumers, to take reasonably
appropriate corrective action for any consumer harmed by the insurance producer's
violation of §§ 58-33A-13 to 58-33A-27, inclusive.
Any violation of § 58-33A-16, 58-33A-17, or 58-33A-19 subjects the insurer, insurance
producer, or general agency or independent agency to suspension, revocation, refusal to renew a
license, or to a monetary penalty as provided for under this title. However, the penalty may be
reduced or eliminated, according to a schedule adopted by the director, if corrective action for the
consumer is taken promptly after a violation is discovered or the violation was not part of a pattern
Section 15. That § 58-33A-21 be repealed.
Section 16. That § 58-33A-22 be repealed.
Section 17. That § 58-33A-23 be repealed.
Section 18. That § 58-33A-24 be repealed.
Section 19. That § 58-33A-1 be amended to read as follows:
58-33A-1. This chapter applies to all individual and group health policies which are solicited or
sold in this state that are subject to chapters 58-15, 58-16, 58-17, 58-18, 58-18B, 58-37A, 58-38, 58-39, 58-40, and 58-41. However, this chapter does not apply to insurance policies and subscriber
contracts subject to the medicare supplement requirements. Except for the exemptions specified in
this section, this chapter applies to any solicitation, negotiation, or effectuation of life insurance
occurring within this state. This chapter applies to any issuer of life insurance contracts including
fraternal benefit societies. This chapter does not apply to:
(1) Group annuities;
(2) Credit life insurance;
(3) Group life insurance (except for disclosures relating to preneed funeral contracts or
prearrangements as provided by this chapter. These disclosure requirements extend to the
issuance or delivery of certificates as well as to the master policy);
(4) Life insurance policies issued in connection with pension and welfare plans as defined by
and which are subject to the federal Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. Section 1001 et seq. as amended to January 1, 1999; or
(5) Variable life insurance under which the amount or duration of the life insurance varies
according to the investment experience of a separate account.
An Act to revise the suitability requirements for annuities.
I certify that the attached Act
originated in the
SENATE as Bill No. 32
Secretary of the Senate
President of the Senate
Secretary of the Senate
Speaker of the House
Senate Bill No. 32
File No. ____
Chapter No. ______
Received at this Executive Office
this _____ day of _____________ ,
20____ at ____________ M.
for the Governor
The attached Act is hereby
approved this ________ day of
______________ , A.D., 20___
STATE OF SOUTH DAKOTA,
Office of the Secretary of State
Filed ____________ , 20___
at _________ o'clock __ M.
Secretary of State
Asst. Secretary of State