SB 263 expected to bring chaos to Calif. insurance, annuity sales come Jan. 1

Some stakeholders are concerned California’s new best-interest insurance sales bill – Senate Bill 263 – could bring chaos both to consumers and agents operating in the state come Jan. 1.

Under Senate Bill 263, agents who sells cash value life insurance or annuities in the state of California will be required to undergo training to ensure compliance with new regulations. These regulations are designed so that agents can only sell life and annuity products in the consumer’s best interest.

The trouble is many insurance agents do not seem to be aware of the new training requirements, according to Cynthia Davidson, director of content and compliance at ExamFX, an insurance certification institute.

“There’s so much confusion out there. There hasn’t been a lot of notification… We had a couple of polls we did on our webinar asking, ‘Did you know about this training requirement?’ and people were like, ‘Nope,’” she said.

At the same time, some consumer groups still feel strongly that the bill will do more harm than good. In an interview with InsuranceNewsNet, Brian Brosnahan, co-founder and executive director, the Life Insurance Consumer Advocacy Center, slammed Senate Bill 263 as an “anti-consumer bill” that will only lead to more customer complaints in the future.

“The bill has a lot of problems. We think it may lead to more complaints…to the extent there are some unscrupulous agents who may use the law to unfairly gain the confidence of consumers,” he said.

The California Department of Insurance did not reply to requests for comment up to the time of this writing.

New training requirements

Davidson explained there are three components to the new training requirements that incorporate California’s new best-interest standards:

1. To sell cash value life insurance: New agents registered after January 2024 must complete four hours of training by January 1, 2025.
2. To sell annuities: All agents — existing and new — must complete a new eight-hour training course on the new standards by July 1, 2025, and a four-hour updated refresher course before their next license renewal.
3. To sell variable life insurance: All agents must complete two hours of new training before their next license renewal.

“So, say your license is renewing in March of 25. You will have to do the four-hour course first, and then you have until July 1st to do the eight-hour one,” Davidson explained.

She said the requirements are not too onerous for existing agents, who may only have to complete the two annuity courses. But, it could be “a big deal” for new agents, who potentially have to complete 16 hours of training in the few remaining weeks of December and during the holidays or face hiccups in their career.

“It’s all very last-minute, and it’s also why everybody’s kind of racing to the finish line here,” Davidson said.

Agents in the dark

Davidson acknowledged that the CDI issued a notice about the new requirements and their respective deadlines in June. But, she suggested “that might not have gotten the word out quite as much as they think” and many agents may not realize until it’s too late.

“It does worry me because there sure seems to be a lot of people who don’t know anything about this… My prediction, for what it’s worth, is January is going to be ‘lit’ and all our phones are going to be blowing up. The Department of Insurance, I’m sure their phone’s already blowing up,” she said.

Brosnahan, however, minced no words in suggesting all agents should know about the requirements before they start selling insurance and annuity products.

“Good agents ought to be aware of this… If there are some agents who don’t pay enough attention to what’s required in their profession, who are not sufficiently on top of this so that they can’t sell annuities, then maybe consumers will be better off, not worse off,” he said.

Consumer impact of SB 263

Davidson said new standards mean Californian consumers will have a better-informed and more-recently-trained force of agents who understand the ethical implications of their sales.

However, she noted that confusion over requirements could cause delays with some people trying to get insured over the next few months, and the benefits of SB 263 seem unclear.

“California will say that consumer protection is the reason we did this, but they have not specified what beneficial outcomes they think are going to get as a result. It has not been specific, just ‘better consumer protection,’” she said.

Brosnahan granted, however, that SB 263 is “a little bit better in very small respects.” For instance, he noted the fact that insurers must establish supervision systems, producers must make recommendations to the consumer in writing and disclosures must be provided at the time of recommendation rather than the time of sale as positives.

Due diligence urged

Davidson emphasized that it’s prudent for insurance agents and companies to comply with the new regulations, however they may feel about it.

“You may not have known that this was coming [but] it’s not worth getting mad about it,” Davidson said. “Just do the training. Just get it over with… California is going to, I think, be serious about enforcing it,” Davidson said.

Brosnahan, meanwhile, suggested insurance companies prepare for a possible influx in complaints.

“I would urge insurance companies to beef up their supervision and complaint staffs, because the bill kind of invites agents to mislead consumers. It’s not a violation of SB 263, but it could very well be violations of other law,” he said.

ExamFX is an American educational institution that provides education, training and certification courses for insurance and securities. It was founded in 1996 and is based out of Leawood, Kansas.

The Life Insurance Consumer Advocacy Center is a non-profit consumer organization founded in 2020 and based in Pleasant Hill, California. It advocates for stronger regulations and consumer protection laws related to life insurance and annuities.

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