Last summer, when we weren’t looking, the California Legislature passed Senate Bill 620 (SB 620) and enacted new insurance producer training statutes at section 1749.8 of the Insurance Code.
This new California law requires eight hours of California-specific annuities training for all life and health agents who sell individual annuity products in the state. Beginning Jan. 1, 2005 life agents subject to the requirement (of which there are an estimated 70,000, according to insurance department figures) must have already completed the training.
New agents licensed after that date must complete the training prior to soliciting individual consumers for annuity sales.
The law requires training in annuity product history, features and benefits; California law, regulations and requirements related to annuities; prohibited sales practices; and fraudulent and unfair trade practices.
These required hours are part of, and not in addition to, the regular continuing education requirement. Training may be provided in either a classroom setting or via home study (print textbook, CD or online).
Why this law was passed
The law seeks to address abuses in annuity sales practices, such as selling an annuity product with an excessive surrender penalty to elderly people. The law also imposes restrictions on approaching elderly prospects for annuity sales.
Most significant is the requirement for a 24-hour waiting period between first contacting a prospect and meeting with them in their home.
“With the dramatic growth in the elderly population in California, the legislature decided it was important to protect seniors in this state from overly-aggressive sales tactics and to make financial professionals accountable for the terms and conditions of the products they sell to elderly consumers,” said Michael J. McGuire, attorney at law, president of the California Elder Law Center in Lakewood, Calif.
“Suitability, the duty to the client and selling products to seniors in their homes are all addressed in this legislation. In addition, the need for education of agents regarding these issues has become required by law.”
What about nonresidents?
Nonresident agents who solicit individual annuity sales in the state of California must receive the required training, unless they are representing an insurer that is a direct response provider.
For the purposes of this requirement, a “direct response provider” means an insurer that meets each of the following criteria:
• The insurer does not initiate telephone contact with the insureds or prospective insureds;
• Agents of the insurers speak with insureds or prospective insureds only by telephone, and at the request of the insureds or prospective insureds;
• Agents of the insurer are assigned to speak with insureds or prospective insureds on a random basis, when contacted;
• Agents of the insurer are salaried and do not receive commissions for sales or referrals.
Continuing education too
And it doesn’t stop there. After the initial eight-hour training, every life agent who sells annuities must also complete four hours of training every two years prior to license renewal, beginning with the license term that follows the one in which they completed the eight-hour initial training course.
Enforcement
Insurance agents are responsible for completing their required training. On the California Department of Insurance (CDI) Web site, a producer’s “License Information Page” will reflect whether the producer has completed his or her annuities training. Failing to complete the training does not affect a producer’s license status, but it does mean the producer is not authorized to offer or sell annuity products.
California regulators have not yet determined at what level the requirement will be enforced. Carriers may want to adopt a “best practices” policy of checking the agent’s training status before permitting annuity business to be transacted. Agents will want to ensure they have completed the eight-hour training in order to avoid any possible errors and omissions exposures to their business.
Also, the CDI has not yet determined what penalty (if any) a carrier would incur for paying a commission to an unauthorized agent.
However, in a press release, the CDI said, “To verify that agents selling annuities are meeting the training requirement, the CDI will be checking insurers’ records during market conduct reviews. Market conduct reviews may include requests for verification from insurers that their life agents authorized to sell their annuity products completed the annuity training requirement. Legal action may be pursued if agents are found to not be meeting the annuity training requirement.”
Where can you get this training?
Courses must be approved by the California Department of Insurance. The CDI recently finalized the educational objectives for the training course. Several offerings from different providers have already been approved, and are listed on the CDI Web site. More information on this new requirement can be found at the California insurance department Web site www.insurance.ca.gov and at www.dearborn.com, or by calling (888) 890-8598.
Cynthia Davidson is the vice president of Insurance Product Management, Dearborn Financial Services. She has responsibility for insurance training and education products for pre-licensing and continuing education in both classroom and non-classroom markets. She currently serves on the California Curriculum Advisory Board and the Board of the Society of Insurance Trainers and Educators (SITE).
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