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AIRC 421 Module 2 Lesson 2 Lesson Summary

Most states have enacted unfair trade practices acts to protect consumers in the insurance market, prohibiting misrepresentation, false advertising, and unfair discrimination. Regulations also govern policy replacements to ensure they benefit clients and require compliance with suitability standards for annuities and life insurance products. Additionally, insurance producers must adhere to federal securities laws when marketing variable life insurance and annuities, ensuring they act in the best interest of their clients.

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2 views

AIRC 421 Module 2 Lesson 2 Lesson Summary

Most states have enacted unfair trade practices acts to protect consumers in the insurance market, prohibiting misrepresentation, false advertising, and unfair discrimination. Regulations also govern policy replacements to ensure they benefit clients and require compliance with suitability standards for annuities and life insurance products. Additionally, insurance producers must adhere to federal securities laws when marketing variable life insurance and annuities, ensuring they act in the best interest of their clients.

Uploaded by

Shiji Mathew
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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AIRC 421 Module 2 Lesson 2

Regulation of Producers and Sales Activities


Summary of Key Points

Most states have enacted unfair trade practices acts to ensure that consumers have accurate and
complete information about insurance products they may purchase.

The NAIC Unfair Trade Practices Act defines certain sales practices as unfair and prohibits
such practices in the business of insurance when committed (1) flagrantly in conscious disregard
of the Act, or (2) so frequently as to indicate a general business practice. The Act prohibits
 Misrepresentation and false advertising of policies
 Various types of false statements
 Unfair discrimination in underwriting and issuing policies
 Rebating
 Unfair discrimination in setting premium rates

The Act also requires insurers to maintain records about complaints, claims, rating, underwriting,
and marketing, and to make this information accessible to the state insurance department.

Although many insurance producers provide financial planning to customers, producers may not
represent themselves as professional financial planners if their primary role is to sell insurance.

Ideally, a policy replacement is suitable and benefits the client. But when a replacement benefits
the producer more than the client, the producer may be engaging in the prohibited practices of
twisting or churning.

Most states have adopted regulations governing policy replacements that are based on the NAIC
Life Insurance and Annuities Replacement Model Regulation (Model Replacement
Regulation). The Regulation imposes several requirements on both insurers and insurance
producers regarding
 The replacement statement
 The written notice regarding replacement
 Submission of application and documents to insurer
 Direct response solicitations
 Insurer oversight of producers’ replacement activities
 Record maintenance
 The policyowner’s 30-day right to cancel

The Model Replacement Regulation also specifies several transactions that are exempt from its
requirements.

Sales of annuities and other life insurance products are subject to state suitability requirements
designed to help customers purchase products that are appropriate for their age and financial
goals. Many states have laws based on the Suitability in Annuity Transactions Model
Regulation, which specifies requirements for both insurers and producers.
.

Copyright © 2021 LL Global, Inc. All rights reserved.


Insurance producers who market variable life insurance and variable annuities also must comply
with federal securities laws and rules adopted by the Securities and Exchange Commission and
the Financial Industry Regulatory Authority (FINRA):
 FINRA Rule 2090—requires members to learn the essential facts about a customer
 FINRA Rule 2111—requires members to develop a customer’s investment profile and
have a reasonable basis to believe recommended securities transactions are suitable for
the customer
 FINRA Rule 2330—sets many requirements for recommended purchases and
exchanges of deferred variable annuities
 SEC Regulation Best Interest (Reg BI) applies to producers who are acting as
registered representatives for a broker-dealer when recommending a variable annuity or
variable life insurance product. When Reg BI applies, the financial professional and the
broker-dealer must act in the best interest of a retail customer at the time a
recommendation is made, without placing the financial or other interests of the financial
professional or the broker-dealer ahead of the interests of the retail customer.

Copyright © 2021 LL Global, Inc. All rights reserved.

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