31.09.12.05

.05 System to Supervise Recommendations.

A. Supervision System.

(1) An insurer shall establish a supervision system that is reasonably designed to achieve the insurerís and the insurance producerís compliance with this chapter, including, at a minimum:

(a) Maintaining reasonable procedures to inform its insurance producers of the requirements of this chapter and incorporating the requirements of this chapter into relevant insurance producer training manuals;

(b) Establishing standards for insurance producer product training and maintaining reasonable procedures to require its insurance producers to comply with the requirements of Regulation .08 of this chapter;

(c) Providing product specific training and training materials, which explain all material features of its annuity products to its insurance producers;

(d) Maintaining 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, including review procedures that 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, that may be designed to require additional review only of those transactions identified for additional review by the selection criteria;

(e) Maintaining reasonable procedures to detect recommendations that are not suitable which may include, confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters and programs of internal monitoring; and

(f) Providing annually a report to senior management, including the senior manager responsible for audit functions, which 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.

(2) Nothing in §A(1)(e) of this regulation prevents an insurer from complying with that paragraph by applying sampling procedures or by confirming suitability information after issuance or delivery of the annuity.

(3) Nothing in this regulation restricts an insurer from contracting for performance of a function, including maintenance of procedures, required under §A(1) of this regulation.

(4) An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to Regulation .09 of this chapter regardless of whether the insurer contracts for performance of a function and regardless of the insurerís compliance with §A(5) of this regulation.

(5) An insurerís supervision system under §A(1) of this regulation shall include supervision of contractual performance under §A(3) of this regulation, including:

(a) Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed; and

(b) 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.

B. 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.