Report - 2023 03 14 A30968 D257311 Bill Report 1120 Sbr Bfgt Ta 23

Summary

A Washington State Senate Bill Report on HB 1120, as of March 9, 2023, prepared for the Senate Committee on Business, Financial Services, Gaming & Trade. The bill, sponsored by Representatives Reeves, Corry and Ryu, concerns the best interest standard for annuity transactions and passed the House on 2/2/23 by 97-0. The report gives background on annuity regulation, the SEC's Regulation Best Interest and NAIC Model #275. It summarizes the bill as requiring insurance producers and insurers to act in the consumer's best interest when recommending annuities, without creating a fiduciary obligation or a private cause of action. It states an effective date of January 1, 2024 and summarizes supportive public testimony.

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                            SENATE BILL REPORT
                                  HB 1120

                                       As of March 9, 2023

Title: An act relating to the best interest standard for annuities in Washington.

Brief Description: Concerning the best interest standard for annuity transactions.

Sponsors: Representatives Reeves, Corry and Ryu.

Brief History: Passed House: 2/2/23, 97-0.
     Committee Activity: Business, Financial Services, Gaming & Trade: 3/09/23.


                                     Brief Summary of Bill
           • Requires insurance producers to act in the best interest of the consumer
             under the circumstances known at the time when making an annuity
             recommendation.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

     Staff: Kellee Gunn (786-7429)

     Background: Annuities. An annuity is a contract sold by an insurer which exchanges
     present contributions for future income payments. In Washington State, fixed rate annuities
     are regulated by the Office of the Insurance Commissioner (OIC), and variable rate
     annuities are regulated by the Department of Financial Institutions.

     When selling an annuity to a consumer, an insurance producer must comply with certain
     requirements in recommending and selling the annuity such as having reasonable grounds to
     believe the recommendation is suitable, making reasonable efforts to obtain relevant
     information from the client, and making recommendations that are reasonable considering
     all the circumstances known to the insurance producer.

     Best Interest Standard. The U.S. Securities and Exchange Commission (SEC), in June



     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

Senate Bill Report                              -1-                                         HB 1120
     2019, finalized a regulation best interest (Reg. BI) which established a best interest standard
     of conduct for broker-dealers beyond existing requirements applied to variable annuities. To
     satisfy Reg. BI, the broker-dealer complies with four specified component obligations:
     disclosure, care, conflict of interest, and compliance.

     In February 2020, the National Association of Insurance Commissioners (NAIC) approved
     revisions to a model act on annuities—Model #275, that required agents and insurance
     carriers to act with reasonable diligence, care, and skill in making annuity recommendations
     to customers.

     Summary of Bill: Insurance producers and insurers who sell annuities must act in the best
     interest of the consumer. The best interest of the consumer is established based on the
     circumstances known at the time that the recommendation is made, without placing the
     producer's, or the insurer's, financial interest ahead of the consumer's interest.

     When selling annuities, a producer has satisfied their obligations to the consumer's best
     interest with the following:
         • knowledge of the consumer's financial situation, insurance needs, and financial
            objectives;
         • understanding of the available options;
         • reasonable basis for recommending an option that meets the consumer's financial
            needs; and
         • communicating the basis of the recommendation.

     Recommendation and sales of annuities made in compliance with comparable standards,
     such as applicable federal rules pertaining to best interest obligations and supervision of
     annuity recommendations and sales, satisfy this requirement. Producers are not required to
     consider other products available in the market other than the products that they sell. The
     best interest standard does not create a fiduciary obligation or relationship.

     Reasonable efforts to obtain consumer profile information from the consumer must be
     made. When exchanging or replacing an annuity the producer must consider the whole
     transaction, such as the inherent costs and benefits and any recent annuity transactions,
     when providing recommendations.

     Prior to the recommendation or sale, the producer must disclose certain information to the
     consumer on OIC's website. Records of the sale or recommendation must be maintained
     that accurately reproduces the actual document between the producer and consumer.

     There is no obligation to the consumer by a producer if:
        • no recommendation was made;
        • a recommendation was made, but was later found to have been prepared based on
           materially inaccurate information provided by the consumer;
        • the consumer refused to provide the relevant information; or


Senate Bill Report                              -2-                                        HB 1120
         • the consumer goes against the producer's recommendations.

     If a violation occurs, OIC may take appropriate corrective action for any consumer harmed.

     Nothing shall be construed to create or imply a private cause of action or subject the
     producer to civil liability under the best interest standard of care or under fiduciary
     standards of conduct.

     Appropriation: None.

     Fiscal Note: Available.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: The bill takes effect on January 1, 2024.

     Staff Summary of Public Testimony: PRO: This bill is about valuing retirement options,
     protecting consumers as they seek help, narrowing the wealth gap, and creating access that
     works best for working families. It requires planners to let consumers know if they have a
     conflict of interest.

     ACLI is delighted to be supporting this bill with the Office of the Insurance Commissioner.
     Since this bill was heard in January, 33 states have adopted this model. The disclosures
     ensure the agent is working in the consumer's best interest.

     Persons Testifying: PRO: Representative Kristine Reeves, Prime Sponsor; Bryon Welch,
     Office of the Insurance Commissioner; Chris Bandoli, National Association of Insurance
     and Financial Advisors Washington; Kris Tefft, American Council of Life Insurers (ACLI).

     Persons Signed In To Testify But Not Testifying: No one.




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