Bill Text: MN SF877 | 2011-2012 | 87th Legislature | Engrossed
Bill Title: Annuity products regulation
Spectrum: Bipartisan Bill
Status: (Introduced - Dead) 2012-04-04 - HF substituted on General Orders HF1134 [SF877 Detail]
Download: Minnesota-2011-SF877-Engrossed.html
1.2relating to insurance; regulating annuity products; enacting a model regulation
1.3adopted by the National Association of Insurance Commissioners relating to
1.4suitability in annuity transactions;amending Minnesota Statutes 2010, sections
1.560K.46, subdivision 4; 72A.20, subdivision 34; proposing coding for new law
1.6in Minnesota Statutes, chapter 72A.
1.7BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.8 Section 1. Minnesota Statutes 2010, section 60K.46, subdivision 4, is amended to read:
1.9 Subd. 4. Suitability of insurance. In recommending the purchase of any life,
1.10endowment, individual accident and sickness, long-term care,annuity, life-endowment, or
1.11Medicare supplement insurance to a customer, a producer must have reasonable grounds
1.12for believing that the recommendation is suitable for the customer and must make
1.13reasonable inquiries to determine suitability. The suitability of a recommended purchase
1.14of insurance will be determined by reference to the totality of the particular customer's
1.15circumstances, including, but not limited to, the customer's income, the customer's need
1.16for insurance, and the values, benefits, and costs of the customer's existing insurance
1.17program, if any, when compared to the values, benefits, and costs of the recommended
1.18policy or policies. This subdivision does not apply to limited lines insurance under section
1.1960K.38, subdivision 1
, paragraph (c). Recommendations for the purchase of an annuity
1.20are subject to sections 72A.203 to 72A.2036 and not this subdivision.
1.21 Sec. 2. Minnesota Statutes 2010, section 72A.20, subdivision 34, is amended to read:
1.22 Subd. 34. Suitability of insurance for customer. In recommending or issuing life,
1.23endowment, individual accident and sickness, long-term care,annuity, life-endowment, or
1.24Medicare supplement insurance to a customer, an insurer, either directly or through its
2.1agent, must have reasonable grounds for believing that the recommendation is suitable for
2.2the customer.
2.3In the case of group insurance marketed on a direct response basis without the use of
2.4direct agent contact, this subdivision is satisfied if the insurer has reasonable grounds to
2.5believe that the insurance offered is generally suitable for the group to whom the offer is
2.6made. Sections 72A.203 to 72A.2036, and not this subdivision, apply to recommending
2.7and issuing an annuity.
2.8 Sec. 3. [72A.203] EXEMPTIONS.
2.9Unless otherwise specifically included, sections 72A.203 to 72A.2036 do not apply
2.10to transactions involving:
2.11(1) direct response solicitations where there is no recommendation based on
2.12information collected from the consumer pursuant to sections 72A.203 to 72A.2036; and
2.13(2) contracts used to fund, unless there is a recommendation to a consumer regarding
2.14an annuity in which case sections 72A.203 to 72A.2036 do apply with respect to the
2.15consumer annuity transaction:
2.16(i) an employee pension or welfare benefit plan that is covered by the Employee
2.17Retirement and Income Security Act of 1974 (ERISA) title 29, United States Code,
2.18sections 1001 to 1461;
2.19(ii) a plan described by section 401(a), 401(k), 403(b), 408(k), or 408(p) of the
2.20Internal Revenue Code of 1986 (IRC); as amended, if established or maintained by an
2.21employer;
2.22(iii) a government or church plan defined in section 414 of the Internal Revenue
2.23Code of 1986 as amended, a government or church welfare benefit plan, or a deferred
2.24compensation plan of a state or local government or tax exempt organization under section
2.25457 of the Internal Revenue Code of 1986, as amended;
2.26(iv) a nonqualified deferred compensation arrangement established or maintained
2.27by an employer or plan sponsor;
2.28(v) settlements of or assumptions of liabilities associated with personal injury
2.29litigation or a dispute or claim resolution process; or
2.30(vi) formal prepaid funeral contracts.
2.31 Sec. 4. [72A.2031] DEFINITIONS.
2.32 Subdivision 1. Definitions. For purposes of sections 72A.203 to 72A.2036, the
2.33terms defined in this section have the meanings given them.
3.1 Subd. 2. Annuity. "Annuity" means an annuity that is an insurance product under
3.2state law that is individually solicited, whether the product is classified as an individual or
3.3group annuity.
3.4 Subd. 3. Continuing education credit or CE credit. "Continuing education credit"
3.5or "CE credit" means one continuing education credit earned pursuant to section 45.30,
3.6subdivision 4.
3.7 Subd. 4. Continuing education provider or CE provider. "Continuing education
3.8provider" or "CE provider" means an approved education provider under chapter 45.
3.9 Subd. 5. FINRA. "FINRA" means the Financial Industry Regulatory Authority
3.10or a succeeding agency.
3.11 Subd. 6. Insurer. "Insurer" means a company required to be licensed under the laws
3.12of this state to provide insurance products, including annuities.
3.13 Subd. 7. Insurance producer. "Insurance producer" means a person required to
3.14be licensed under the laws of this state to sell, solicit, or negotiate insurance, including
3.15annuities.
3.16 Subd. 8. Recommendation. "Recommendation" means advice or guidance
3.17provided or made by an insurance producer, or an insurer where no producer is involved,
3.18to an individual consumer that results in a purchase, exchange, or replacement of an
3.19annuity in accordance with that advice or guidance.
3.20 Subd. 9. Replacement. "Replacement" has the meaning given in section 61A.53,
3.21subdivision 2.
3.22 Subd. 10. Suitability information. "Suitability information" means current and
3.23currently anticipated material information that is reasonably appropriate to determine the
3.24suitability of a recommendation, including the following:
3.25(1) age;
3.26(2) annual income;
3.27(3) financial situation and needs, including the financial resources used for the
3.28funding of the annuity, and including current and currently anticipated material changes
3.29in financial situation and needs;
3.30(4) financial experience;
3.31(5) financial objectives;
3.32(6) intended use of the annuity;
3.33(7) financial time horizon;
3.34(8) existing assets, including investment and life insurance holdings;
3.35(9) liquidity needs;
3.36(10) liquid net worth;
4.1(11) risk tolerance;
4.2(12) tax status; and
4.3(13) whether or not the consumer has a reverse mortgage.
4.4 Sec. 5. [72A.2032] DUTIES OF INSURERS AND INSURANCE PRODUCERS.
4.5 Subdivision 1. Suitability standard. In recommending to a consumer the purchase
4.6of an annuity or the exchange of an annuity that results in another insurance transaction or
4.7series of insurance transactions, the insurance producer, or the insurer where no producer
4.8is involved, shall have reasonable grounds for believing after a reasonable inquiry, that the
4.9recommendation is suitable for the consumer, under the totality of circumstances based on
4.10the facts disclosed by the consumer as to the consumer's investments and other insurance
4.11products and as to the consumer's financial situation and needs, including the consumer's
4.12suitability information, and that there is a reasonable basis to believe all of the following:
4.13(1) the consumer has been reasonably informed of various features of the annuity,
4.14such as the potential surrender period and surrender charge, potential tax penalty if the
4.15consumer sells, exchanges, surrenders, redeems, or annuitizes the annuity, mortality and
4.16expense fees, investment advisory fees, potential charges for and features of riders,
4.17limitations on interest returns, insurance and investment components, and market risk;
4.18(2) the consumer would receive a tangible net benefit from the transaction;
4.19(3) the particular annuity as a whole, the underlying subaccounts to which funds are
4.20allocated at the time of purchase or exchange of the annuity, and riders and similar product
4.21enhancements, if any, are suitable; and in the case of an exchange or replacement, the
4.22transaction as a whole is suitable, taking into account, among other things, the age of the
4.23consumer; for the particular consumer based on the consumer's suitability information; and
4.24(4) in the case of an exchange or replacement of an annuity, the exchange or
4.25replacement is suitable including taking into consideration all of the following:
4.26(i) the consumer will incur a surrender charge; be subject to the commencement of a
4.27new surrender period; lose existing benefits, such as death, living, or other contractual
4.28benefits; or be subject to increased fees, investment advisory fees, or charges for riders
4.29and similar product enhancements;
4.30(ii) the consumer would receive a tangible net benefit from the transaction; and in
4.31the case of a person over 65 years of age or older, neither a producer nor an insurer where
4.32no producer is involved, shall recommend a replacement or exchange of an annuity that
4.33requires the insured to pay a surrender charge for the annuity being replaced or exchanged
4.34if the replacement or exchange does not confer a substantial financial benefit over the life
5.1of the annuity to the consumer so that a reasonable person would believe the purchase
5.2is unnecessary; and
5.3(iii) the consumer has had another annuity exchange or replacement and, in
5.4particular, an exchange or replacement within the preceding 60 months.
5.5 Subd. 2. Obtaining suitability information. Before the execution of a purchase,
5.6exchange, or replacement of an annuity resulting from a recommendation, an insurance
5.7producer, or an insurer where no producer is involved, shall make reasonable efforts
5.8to obtain the consumer's suitability information and record this information on a form,
5.9inventory, or similar record.
5.10 Subd. 3. Restriction on issuance of annuity. Except as permitted under subdivision
5.114, an insurer shall not issue an annuity recommended to a consumer unless there is a
5.12reasonable basis to believe the annuity is suitable based on the consumer's suitability
5.13information.
5.14 Subd. 4. Exception. (a) Except as provided under paragraph (b), an insurance
5.15producer, or an insurer, does not have any obligation to a consumer under subdivision 1
5.16or 3 related to an annuity transaction if:
5.17(1) no recommendation is made;
5.18(2) a recommendation was made and was later found to have been prepared based on
5.19materially inaccurate information provided by the consumer;
5.20(3) a consumer refuses to provide relevant suitability information and the annuity
5.21transaction is not recommended; or
5.22(4) a consumer decides to enter into an annuity transaction that is not based on a
5.23recommendation of the insurer or the insurance producer.
5.24(b) An insurer's issuance of an annuity subject to paragraph (a) shall be reasonable
5.25under all the circumstances actually known, or which after reasonable inquiry should be
5.26known, to the insurer or the insurance producer at the time the annuity is issued.
5.27 Subd. 5. Documentation. An insurance producer or, where no insurance producer
5.28is involved, the responsible insurer representative, shall at the time of sale:
5.29(1) make a record of any recommendation subject to subdivision 1;
5.30(2) obtain a customer signed statement documenting a customer's refusal to provide
5.31suitability information, if any; and
5.32(3) obtain a customer signed statement acknowledging that an annuity transaction
5.33is not recommended if a customer decides to enter into an annuity transaction that is not
5.34based on the insurance producer's or insurer's recommendation.
6.1 Subd. 6. Supervision system. (a) An insurer shall establish a supervision system
6.2that is reasonably designed to achieve the insurer's and its insurance producers' compliance
6.3with sections 72A.203 to 72A.2036, including, but not limited to, all of the following:
6.4(1) the insurer shall maintain reasonable procedures to inform its insurance
6.5producers of the requirements of sections 72A.203 to 72A.2036 and shall incorporate the
6.6requirements of sections 72A.203 to 72A.2036 into relevant insurance producer training
6.7programs and manuals;
6.8(2) the insurer shall establish standards for insurance producer product training
6.9and shall maintain reasonable procedures to require its insurance producers to comply
6.10with the requirements of section 72A.2033;
6.11(3) the insurer shall provide product-specific training and training materials which
6.12explain all material features of its annuity products to its insurance producers;
6.13(4) the insurer shall maintain procedures for review of each recommendation
6.14before issuance of an annuity that are designed to ensure that there is a reasonable basis
6.15to determine that a recommendation is suitable. The review procedures may apply a
6.16screening system for the purpose of identifying selected transactions for additional
6.17review and may be accomplished electronically or through other means including, but
6.18not limited to, physical review. Such an electronic or other system may be designed to
6.19require additional review only of those transactions identified for additional review by
6.20the selection criteria;
6.21(5) the insurer shall maintain reasonable procedures to detect recommendations
6.22that are not suitable. This may include, but is not limited to, confirmation of consumer
6.23suitability information, systematic customer surveys, interviews, confirmation letters,
6.24and programs of internal monitoring. Nothing in this clause prevents an insurer from
6.25complying with this clause by applying sampling procedures, or by confirming suitability
6.26information after issuance or delivery of the annuity; and
6.27(6) the insurer shall annually provide a report to senior management, including to the
6.28senior manager responsible for audit functions, which details a review, with appropriate
6.29testing, reasonably designed to determine the effectiveness of the supervision system, the
6.30exceptions found, and corrective action taken or recommended, if any.
6.31(b)(1) Nothing in this subdivision restricts an insurer from contracting for
6.32performance of a function, including maintenance of procedures, required under paragraph
6.33(a). An insurer is responsible for taking appropriate corrective action and may be subject
6.34to sanctions and penalties pursuant to section 72A.2034 regardless of whether the insurer
6.35contracts for performance of a function and regardless of the insurer's compliance with
6.36subdivision 2, and an insurer is responsible for the compliance of an insurance producer
7.1with the provisions of sections 72A.203 to 72A.2036 regardless of whether the insurer
7.2contracts for performance of a function required under this paragraph; and
7.3(2) an insurer's supervision system under paragraph (a) must include supervision
7.4of contractual performance under this clause. This includes, but is not limited to, the
7.5following:
7.6(i) monitoring and, as appropriate, conducting audits to assure that the contracted
7.7function is properly performed; and
7.8(ii) annually obtaining a certification from a senior manager who has responsibility
7.9for the contracted function that the manager has a reasonable basis to represent, and does
7.10represent, that the function is properly performed.
7.11(c) An insurer is not required to include in its system of supervision an insurance
7.12producer's recommendations to consumers of products other than the annuities offered
7.13by the insurer.
7.14 Subd. 7. Undue influence. An insurance producer or insurer where no producer is
7.15involved shall not dissuade, or attempt to dissuade, a consumer from:
7.16(1) providing suitability information to the insurance producer or insurer and
7.17truthfully responding to an insurer's request for confirmation of suitability information;
7.18(2) filing a complaint; or
7.19(3) cooperating with the investigation of a complaint.
7.20 Subd. 8. FINRA compliance. (a) Sales made in compliance with FINRA
7.21requirements pertaining to suitability and supervision of annuity transactions satisfy
7.22the requirements under sections 72A.203 to 72A.2036. This subdivision applies to
7.23FINRA broker-dealer sales of variable annuities and fixed annuities if the suitability
7.24and supervision is no less stringent than to those applied to variable annuity sales under
7.25FINRA requirements. However, nothing in this subdivision limits the commissioner of
7.26commerce's ability to enforce the provisions of sections 72A.203 to 72A.2036 or limit the
7.27commissioner of commerce's authority to act under chapter 45 to determine that required
7.28supervisory and training systems are in place, and sales of annuity products are made in a
7.29manner consistent with sections 72A.203 to 72A.2036 and federal law.
7.30(b) For paragraph (a) to apply, an insurer shall:
7.31(1) monitor the FINRA member broker-dealer using information collected in the
7.32normal course of an insurer's business; and
7.33(2) provide to the FINRA member broker-dealer information and reports that
7.34are reasonably appropriate to assist the FINRA member broker-dealer to maintain its
7.35supervision system.
8.1 Sec. 6. [72A.2033] INSURANCE PRODUCER TRAINING.
8.2 Subdivision 1. Requirement. An insurance producer shall not solicit the sale of an
8.3annuity product unless the insurance producer has adequate knowledge of the product to
8.4recommend the annuity and the insurance producer is in compliance with the insurer's
8.5standards for product training. An insurance producer may rely on insurer-provided
8.6product-specific training standards and materials to comply with this subdivision.
8.7 Subd. 2. Initial training. (a) An insurance producer who is otherwise entitled to
8.8engage in the sale of annuity products shall complete a one-time four-credit training
8.9course approved by the commissioner and provided by a continuing education provider
8.10approved by the commissioner prior to commencing the transaction of annuities.
8.11Insurance producers who hold a life insurance line of authority on the effective
8.12date of sections 72A.203 to 72A.2036 and who desire to sell annuities shall complete
8.13the requirements of this subdivision no later than six months after January 1, 2013.
8.14Individuals who obtain a life insurance line of authority on or after January 1, 2013, may
8.15not engage in the sale of annuities until the annuity training course required under this
8.16subdivision has been completed. Producers licensed on or after January 1, 2013, have
8.17until June 30, 2013, to complete the course.
8.18(b) The length of the training required under this subdivision must be four continuing
8.19education hours.
8.20(c) The training required under this subdivision must include information on the
8.21following topics:
8.22(1) the types of annuities and various classifications of annuities;
8.23(2) identification of the parties to an annuity;
8.24(3) how fixed, variable, and indexed annuity contract provisions affect consumers;
8.25(4) the application of income taxation of qualified and nonqualified annuities;
8.26(5) the primary uses of annuities;
8.27(6) suitability information and whether an annuity is suitable for a consumer; and
8.28(7) prohibited sales practices, the recognition of indicators that a prospective insured
8.29may lack the short-term memory or judgment to knowingly purchase an insurance
8.30product, and fraudulent and unfair trade practices as well as replacement and disclosure
8.31requirements for sales of annuities under Minnesota law, including, but not limited to
8.32sections 72A.203 to 72A.2036.
8.33(d) Providers of courses intended to comply with this subdivision shall cover all
8.34topics listed in the prescribed outline and shall not present any marketing information or
8.35provide training on sales techniques or provide specific information about a particular
8.36insurer's products.
9.1(e) A provider of an annuity training course intended to comply with this subdivision
9.2must be an approved continuing education provider in this state and comply with the
9.3requirements applicable to insurance producer continuing education courses.
9.4(f) Annuity training courses may be conducted and completed by classroom or
9.5self-study methods in accordance with chapter 45. In order to assist compliance with this
9.6section, all courses approved by the commissioner for the purposes of this section shall be
9.7given the course title, "Annuity Suitability and Disclosure." Only courses satisfying the
9.8requirements of this section shall use this course title after the effective date of this section.
9.9(g) Providers of annuity training shall comply with the course completion reporting
9.10requirements of chapter 45.
9.11(h) The satisfaction of the training requirements of another state that are substantially
9.12similar to the provisions of this subdivision satisfies the training requirements of this
9.13subdivision in this state, but does not satisfy any of the continuing education requirements
9.14of chapter 60K unless the training requirements of the other state are satisfied through one
9.15or more continuing education courses approved by the commissioner.
9.16(i) An insurer shall verify that an insurance producer has completed the annuity
9.17training course required under this subdivision before allowing the producer to sell an
9.18annuity product for that insurer. An insurer may satisfy its responsibility under this
9.19subdivision by obtaining certificates of completion of the training course or obtaining
9.20reports provided by commissioner-sponsored database systems or vendors or from
9.21a reasonably reliable commercial database vendor that has a reporting arrangement
9.22with approved insurance education providers. If such data collection and reporting
9.23arrangements are not in place, an insurer must maintain records verifying that the producer
9.24has completed the annuity training course required under this subdivision and make the
9.25records available to the commissioner upon request.
9.26 Sec. 7. [72A.2034] PENALTIES.
9.27 Subdivision 1. Imposition. (a) An insurer is responsible for compliance with
9.28sections 72A.203 to 72A.2036. If a violation occurs, either because of the action or
9.29inaction of the insurer or its insurance producer, the commissioner may, in addition to any
9.30available penalties, remedies, or administrative actions, order:
9.31(1) an insurer to take reasonably appropriate corrective, including, but not limited
9.32to canceling a transaction action for any consumer harmed by the insurer's, or by its
9.33insurance producer's, violation of sections 72A.203 to 72A.2036;
10.1(2) a general agency, independent agency, or the insurance producer to take
10.2reasonably appropriate corrective action for any consumer harmed by the insurance
10.3producer's violation of sections 72A.203 to 72A.2036; and
10.4(3) appropriate penalties and sanctions.
10.5(b) Nothing in sections 72A.203 to 72A.2036 shall affect any obligation of an
10.6insurer for its acts of its insurance producers or consumer remedy or cause of action
10.7that is otherwise provided for under applicable federal or state law, including without
10.8limitation, chapter 60K.
10.9 Subd. 2. Aggravation or mitigation. Any applicable penalty for a violation of
10.10sections 72A.203 to 72A.2036 may be increased or decreased upon consideration of any
10.11aggravating or mitigating circumstances.
10.12 Sec. 8. [72A.2035] RECORD KEEPING.
10.13 Subdivision 1. Duration. Insurers and insurance producers shall maintain or be able
10.14to make available to the commissioner records of the information collected from the
10.15consumer and other information used in making the recommendations that were the basis
10.16for insurance transactions for ten years after the insurance transaction is completed by the
10.17insurer. An insurer is permitted, but shall not be required, to maintain documentation on
10.18behalf of an insurance producer.
10.19 Subd. 2. Medium. Records required to be maintained by sections 72A.203 to
10.2072A.2036 may be maintained in paper, photographic, microprocess, magnetic, mechanical,
10.21or electronic media or by any process that accurately reproduces the actual document.
10.22 Sec. 9. [72A.2036] RELATIONSHIP TO OTHER LAWS; ENFORCEMENT.
10.23(a) Nothing in sections 72A.203 to 72A.2036 shall be interpreted to:
10.24(1) preclude, preempt, or otherwise interfere with the application of any other laws
10.25of this state that may apply in any matter that is subject to sections 72A.203 to 72A.2036;
10.26(2) change, alter, or modify any of the obligations, duties, or responsibilities of
10.27insurers or insurance producers, pursuant to any orders of the commissioner or consent
10.28decrees in effect as of January 1, 2013; or
10.29(3) limit the commissioner's authority to make any investigation or take any action
10.30under chapter 45 or other applicable state law with respect to any insurer, producer,
10.31broker-dealer, third-party contractor, or other entity engaged in any activity involving the
10.32sale of an annuity that is subject to sections 72A.203 to 72A.2036.
10.33(b) In addition to any other penalties provided by the laws of this state, a violation of
10.34sections 72A.203 to 72A.2036 shall be considered a violation of section 72A.20.
11.1 Sec. 10. EFFECTIVE DATE.
11.2This act is effective January 1, 2013.
1.3adopted by the National Association of Insurance Commissioners relating to
1.4suitability in annuity transactions;amending Minnesota Statutes 2010, sections
1.560K.46, subdivision 4; 72A.20, subdivision 34; proposing coding for new law
1.6in Minnesota Statutes, chapter 72A.
1.7BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.8 Section 1. Minnesota Statutes 2010, section 60K.46, subdivision 4, is amended to read:
1.9 Subd. 4. Suitability of insurance. In recommending the purchase of any life,
1.10endowment, individual accident and sickness, long-term care,
1.11Medicare supplement insurance to a customer, a producer must have reasonable grounds
1.12for believing that the recommendation is suitable for the customer and must make
1.13reasonable inquiries to determine suitability. The suitability of a recommended purchase
1.14of insurance will be determined by reference to the totality of the particular customer's
1.15circumstances, including, but not limited to, the customer's income, the customer's need
1.16for insurance, and the values, benefits, and costs of the customer's existing insurance
1.17program, if any, when compared to the values, benefits, and costs of the recommended
1.18policy or policies. This subdivision does not apply to limited lines insurance under section
1.20are subject to sections 72A.203 to 72A.2036 and not this subdivision.
1.21 Sec. 2. Minnesota Statutes 2010, section 72A.20, subdivision 34, is amended to read:
1.22 Subd. 34. Suitability of insurance for customer. In recommending or issuing life,
1.23endowment, individual accident and sickness, long-term care,
1.24Medicare supplement insurance to a customer, an insurer, either directly or through its
2.1agent, must have reasonable grounds for believing that the recommendation is suitable for
2.2the customer.
2.3In the case of group insurance marketed on a direct response basis without the use of
2.4direct agent contact, this subdivision is satisfied if the insurer has reasonable grounds to
2.5believe that the insurance offered is generally suitable for the group to whom the offer is
2.6made. Sections 72A.203 to 72A.2036, and not this subdivision, apply to recommending
2.7and issuing an annuity.
2.8 Sec. 3. [72A.203] EXEMPTIONS.
2.9Unless otherwise specifically included, sections 72A.203 to 72A.2036 do not apply
2.10to transactions involving:
2.11(1) direct response solicitations where there is no recommendation based on
2.12information collected from the consumer pursuant to sections 72A.203 to 72A.2036; and
2.13(2) contracts used to fund, unless there is a recommendation to a consumer regarding
2.14an annuity in which case sections 72A.203 to 72A.2036 do apply with respect to the
2.15consumer annuity transaction:
2.16(i) an employee pension or welfare benefit plan that is covered by the Employee
2.17Retirement and Income Security Act of 1974 (ERISA) title 29, United States Code,
2.18sections 1001 to 1461;
2.19(ii) a plan described by section 401(a), 401(k), 403(b), 408(k), or 408(p) of the
2.20Internal Revenue Code of 1986 (IRC); as amended, if established or maintained by an
2.21employer;
2.22(iii) a government or church plan defined in section 414 of the Internal Revenue
2.23Code of 1986 as amended, a government or church welfare benefit plan, or a deferred
2.24compensation plan of a state or local government or tax exempt organization under section
2.25457 of the Internal Revenue Code of 1986, as amended;
2.26(iv) a nonqualified deferred compensation arrangement established or maintained
2.27by an employer or plan sponsor;
2.28(v) settlements of or assumptions of liabilities associated with personal injury
2.29litigation or a dispute or claim resolution process; or
2.30(vi) formal prepaid funeral contracts.
2.31 Sec. 4. [72A.2031] DEFINITIONS.
2.32 Subdivision 1. Definitions. For purposes of sections 72A.203 to 72A.2036, the
2.33terms defined in this section have the meanings given them.
3.1 Subd. 2. Annuity. "Annuity" means an annuity that is an insurance product under
3.2state law that is individually solicited, whether the product is classified as an individual or
3.3group annuity.
3.4 Subd. 3. Continuing education credit or CE credit. "Continuing education credit"
3.5or "CE credit" means one continuing education credit earned pursuant to section 45.30,
3.6subdivision 4.
3.7 Subd. 4. Continuing education provider or CE provider. "Continuing education
3.8provider" or "CE provider" means an approved education provider under chapter 45.
3.9 Subd. 5. FINRA. "FINRA" means the Financial Industry Regulatory Authority
3.10or a succeeding agency.
3.11 Subd. 6. Insurer. "Insurer" means a company required to be licensed under the laws
3.12of this state to provide insurance products, including annuities.
3.13 Subd. 7. Insurance producer. "Insurance producer" means a person required to
3.14be licensed under the laws of this state to sell, solicit, or negotiate insurance, including
3.15annuities.
3.16 Subd. 8. Recommendation. "Recommendation" means advice or guidance
3.17provided or made by an insurance producer, or an insurer where no producer is involved,
3.18to an individual consumer that results in a purchase, exchange, or replacement of an
3.19annuity in accordance with that advice or guidance.
3.20 Subd. 9. Replacement. "Replacement" has the meaning given in section 61A.53,
3.21subdivision 2.
3.22 Subd. 10. Suitability information. "Suitability information" means current and
3.23currently anticipated material information that is reasonably appropriate to determine the
3.24suitability of a recommendation, including the following:
3.25(1) age;
3.26(2) annual income;
3.27(3) financial situation and needs, including the financial resources used for the
3.28funding of the annuity, and including current and currently anticipated material changes
3.29in financial situation and needs;
3.30(4) financial experience;
3.31(5) financial objectives;
3.32(6) intended use of the annuity;
3.33(7) financial time horizon;
3.34(8) existing assets, including investment and life insurance holdings;
3.35(9) liquidity needs;
3.36(10) liquid net worth;
4.1(11) risk tolerance;
4.2(12) tax status; and
4.3(13) whether or not the consumer has a reverse mortgage.
4.4 Sec. 5. [72A.2032] DUTIES OF INSURERS AND INSURANCE PRODUCERS.
4.5 Subdivision 1. Suitability standard. In recommending to a consumer the purchase
4.6of an annuity or the exchange of an annuity that results in another insurance transaction or
4.7series of insurance transactions, the insurance producer, or the insurer where no producer
4.8is involved, shall have reasonable grounds for believing after a reasonable inquiry, that the
4.9recommendation is suitable for the consumer, under the totality of circumstances based on
4.10the facts disclosed by the consumer as to the consumer's investments and other insurance
4.11products and as to the consumer's financial situation and needs, including the consumer's
4.12suitability information, and that there is a reasonable basis to believe all of the following:
4.13(1) the consumer has been reasonably informed of various features of the annuity,
4.14such as the potential surrender period and surrender charge, potential tax penalty if the
4.15consumer sells, exchanges, surrenders, redeems, or annuitizes the annuity, mortality and
4.16expense fees, investment advisory fees, potential charges for and features of riders,
4.17limitations on interest returns, insurance and investment components, and market risk;
4.18(2) the consumer would receive a tangible net benefit from the transaction;
4.19(3) the particular annuity as a whole, the underlying subaccounts to which funds are
4.20allocated at the time of purchase or exchange of the annuity, and riders and similar product
4.21enhancements, if any, are suitable; and in the case of an exchange or replacement, the
4.22transaction as a whole is suitable, taking into account, among other things, the age of the
4.23consumer; for the particular consumer based on the consumer's suitability information; and
4.24(4) in the case of an exchange or replacement of an annuity, the exchange or
4.25replacement is suitable including taking into consideration all of the following:
4.26(i) the consumer will incur a surrender charge; be subject to the commencement of a
4.27new surrender period; lose existing benefits, such as death, living, or other contractual
4.28benefits; or be subject to increased fees, investment advisory fees, or charges for riders
4.29and similar product enhancements;
4.30(ii) the consumer would receive a tangible net benefit from the transaction; and in
4.31the case of a person over 65 years of age or older, neither a producer nor an insurer where
4.32no producer is involved, shall recommend a replacement or exchange of an annuity that
4.33requires the insured to pay a surrender charge for the annuity being replaced or exchanged
4.34if the replacement or exchange does not confer a substantial financial benefit over the life
5.1of the annuity to the consumer so that a reasonable person would believe the purchase
5.2is unnecessary; and
5.3(iii) the consumer has had another annuity exchange or replacement and, in
5.4particular, an exchange or replacement within the preceding 60 months.
5.5 Subd. 2. Obtaining suitability information. Before the execution of a purchase,
5.6exchange, or replacement of an annuity resulting from a recommendation, an insurance
5.7producer, or an insurer where no producer is involved, shall make reasonable efforts
5.8to obtain the consumer's suitability information and record this information on a form,
5.9inventory, or similar record.
5.10 Subd. 3. Restriction on issuance of annuity. Except as permitted under subdivision
5.114, an insurer shall not issue an annuity recommended to a consumer unless there is a
5.12reasonable basis to believe the annuity is suitable based on the consumer's suitability
5.13information.
5.14 Subd. 4. Exception. (a) Except as provided under paragraph (b), an insurance
5.15producer, or an insurer, does not have any obligation to a consumer under subdivision 1
5.16or 3 related to an annuity transaction if:
5.17(1) no recommendation is made;
5.18(2) a recommendation was made and was later found to have been prepared based on
5.19materially inaccurate information provided by the consumer;
5.20(3) a consumer refuses to provide relevant suitability information and the annuity
5.21transaction is not recommended; or
5.22(4) a consumer decides to enter into an annuity transaction that is not based on a
5.23recommendation of the insurer or the insurance producer.
5.24(b) An insurer's issuance of an annuity subject to paragraph (a) shall be reasonable
5.25under all the circumstances actually known, or which after reasonable inquiry should be
5.26known, to the insurer or the insurance producer at the time the annuity is issued.
5.27 Subd. 5. Documentation. An insurance producer or, where no insurance producer
5.28is involved, the responsible insurer representative, shall at the time of sale:
5.29(1) make a record of any recommendation subject to subdivision 1;
5.30(2) obtain a customer signed statement documenting a customer's refusal to provide
5.31suitability information, if any; and
5.32(3) obtain a customer signed statement acknowledging that an annuity transaction
5.33is not recommended if a customer decides to enter into an annuity transaction that is not
5.34based on the insurance producer's or insurer's recommendation.
6.1 Subd. 6. Supervision system. (a) An insurer shall establish a supervision system
6.2that is reasonably designed to achieve the insurer's and its insurance producers' compliance
6.3with sections 72A.203 to 72A.2036, including, but not limited to, all of the following:
6.4(1) the insurer shall maintain reasonable procedures to inform its insurance
6.5producers of the requirements of sections 72A.203 to 72A.2036 and shall incorporate the
6.6requirements of sections 72A.203 to 72A.2036 into relevant insurance producer training
6.7programs and manuals;
6.8(2) the insurer shall establish standards for insurance producer product training
6.9and shall maintain reasonable procedures to require its insurance producers to comply
6.10with the requirements of section 72A.2033;
6.11(3) the insurer shall provide product-specific training and training materials which
6.12explain all material features of its annuity products to its insurance producers;
6.13(4) the insurer shall maintain procedures for review of each recommendation
6.14before issuance of an annuity that are designed to ensure that there is a reasonable basis
6.15to determine that a recommendation is suitable. The review procedures may apply a
6.16screening system for the purpose of identifying selected transactions for additional
6.17review and may be accomplished electronically or through other means including, but
6.18not limited to, physical review. Such an electronic or other system may be designed to
6.19require additional review only of those transactions identified for additional review by
6.20the selection criteria;
6.21(5) the insurer shall maintain reasonable procedures to detect recommendations
6.22that are not suitable. This may include, but is not limited to, confirmation of consumer
6.23suitability information, systematic customer surveys, interviews, confirmation letters,
6.24and programs of internal monitoring. Nothing in this clause prevents an insurer from
6.25complying with this clause by applying sampling procedures, or by confirming suitability
6.26information after issuance or delivery of the annuity; and
6.27(6) the insurer shall annually provide a report to senior management, including to the
6.28senior manager responsible for audit functions, which details a review, with appropriate
6.29testing, reasonably designed to determine the effectiveness of the supervision system, the
6.30exceptions found, and corrective action taken or recommended, if any.
6.31(b)(1) Nothing in this subdivision restricts an insurer from contracting for
6.32performance of a function, including maintenance of procedures, required under paragraph
6.33(a). An insurer is responsible for taking appropriate corrective action and may be subject
6.34to sanctions and penalties pursuant to section 72A.2034 regardless of whether the insurer
6.35contracts for performance of a function and regardless of the insurer's compliance with
6.36subdivision 2, and an insurer is responsible for the compliance of an insurance producer
7.1with the provisions of sections 72A.203 to 72A.2036 regardless of whether the insurer
7.2contracts for performance of a function required under this paragraph; and
7.3(2) an insurer's supervision system under paragraph (a) must include supervision
7.4of contractual performance under this clause. This includes, but is not limited to, the
7.5following:
7.6(i) monitoring and, as appropriate, conducting audits to assure that the contracted
7.7function is properly performed; and
7.8(ii) annually obtaining a certification from a senior manager who has responsibility
7.9for the contracted function that the manager has a reasonable basis to represent, and does
7.10represent, that the function is properly performed.
7.11(c) An insurer is not required to include in its system of supervision an insurance
7.12producer's recommendations to consumers of products other than the annuities offered
7.13by the insurer.
7.14 Subd. 7. Undue influence. An insurance producer or insurer where no producer is
7.15involved shall not dissuade, or attempt to dissuade, a consumer from:
7.16(1) providing suitability information to the insurance producer or insurer and
7.17truthfully responding to an insurer's request for confirmation of suitability information;
7.18(2) filing a complaint; or
7.19(3) cooperating with the investigation of a complaint.
7.20 Subd. 8. FINRA compliance. (a) Sales made in compliance with FINRA
7.21requirements pertaining to suitability and supervision of annuity transactions satisfy
7.22the requirements under sections 72A.203 to 72A.2036. This subdivision applies to
7.23FINRA broker-dealer sales of variable annuities and fixed annuities if the suitability
7.24and supervision is no less stringent than to those applied to variable annuity sales under
7.25FINRA requirements. However, nothing in this subdivision limits the commissioner of
7.26commerce's ability to enforce the provisions of sections 72A.203 to 72A.2036 or limit the
7.27commissioner of commerce's authority to act under chapter 45 to determine that required
7.28supervisory and training systems are in place, and sales of annuity products are made in a
7.29manner consistent with sections 72A.203 to 72A.2036 and federal law.
7.30(b) For paragraph (a) to apply, an insurer shall:
7.31(1) monitor the FINRA member broker-dealer using information collected in the
7.32normal course of an insurer's business; and
7.33(2) provide to the FINRA member broker-dealer information and reports that
7.34are reasonably appropriate to assist the FINRA member broker-dealer to maintain its
7.35supervision system.
8.1 Sec. 6. [72A.2033] INSURANCE PRODUCER TRAINING.
8.2 Subdivision 1. Requirement. An insurance producer shall not solicit the sale of an
8.3annuity product unless the insurance producer has adequate knowledge of the product to
8.4recommend the annuity and the insurance producer is in compliance with the insurer's
8.5standards for product training. An insurance producer may rely on insurer-provided
8.6product-specific training standards and materials to comply with this subdivision.
8.7 Subd. 2. Initial training. (a) An insurance producer who is otherwise entitled to
8.8engage in the sale of annuity products shall complete a one-time four-credit training
8.9course approved by the commissioner and provided by a continuing education provider
8.10approved by the commissioner prior to commencing the transaction of annuities.
8.11Insurance producers who hold a life insurance line of authority on the effective
8.12date of sections 72A.203 to 72A.2036 and who desire to sell annuities shall complete
8.13the requirements of this subdivision no later than six months after January 1, 2013.
8.14Individuals who obtain a life insurance line of authority on or after January 1, 2013, may
8.15not engage in the sale of annuities until the annuity training course required under this
8.16subdivision has been completed. Producers licensed on or after January 1, 2013, have
8.17until June 30, 2013, to complete the course.
8.18(b) The length of the training required under this subdivision must be four continuing
8.19education hours.
8.20(c) The training required under this subdivision must include information on the
8.21following topics:
8.22(1) the types of annuities and various classifications of annuities;
8.23(2) identification of the parties to an annuity;
8.24(3) how fixed, variable, and indexed annuity contract provisions affect consumers;
8.25(4) the application of income taxation of qualified and nonqualified annuities;
8.26(5) the primary uses of annuities;
8.27(6) suitability information and whether an annuity is suitable for a consumer; and
8.28(7) prohibited sales practices, the recognition of indicators that a prospective insured
8.29may lack the short-term memory or judgment to knowingly purchase an insurance
8.30product, and fraudulent and unfair trade practices as well as replacement and disclosure
8.31requirements for sales of annuities under Minnesota law, including, but not limited to
8.32sections 72A.203 to 72A.2036.
8.33(d) Providers of courses intended to comply with this subdivision shall cover all
8.34topics listed in the prescribed outline and shall not present any marketing information or
8.35provide training on sales techniques or provide specific information about a particular
8.36insurer's products.
9.1(e) A provider of an annuity training course intended to comply with this subdivision
9.2must be an approved continuing education provider in this state and comply with the
9.3requirements applicable to insurance producer continuing education courses.
9.4(f) Annuity training courses may be conducted and completed by classroom or
9.5self-study methods in accordance with chapter 45. In order to assist compliance with this
9.6section, all courses approved by the commissioner for the purposes of this section shall be
9.7given the course title, "Annuity Suitability and Disclosure." Only courses satisfying the
9.8requirements of this section shall use this course title after the effective date of this section.
9.9(g) Providers of annuity training shall comply with the course completion reporting
9.10requirements of chapter 45.
9.11(h) The satisfaction of the training requirements of another state that are substantially
9.12similar to the provisions of this subdivision satisfies the training requirements of this
9.13subdivision in this state, but does not satisfy any of the continuing education requirements
9.14of chapter 60K unless the training requirements of the other state are satisfied through one
9.15or more continuing education courses approved by the commissioner.
9.16(i) An insurer shall verify that an insurance producer has completed the annuity
9.17training course required under this subdivision before allowing the producer to sell an
9.18annuity product for that insurer. An insurer may satisfy its responsibility under this
9.19subdivision by obtaining certificates of completion of the training course or obtaining
9.20reports provided by commissioner-sponsored database systems or vendors or from
9.21a reasonably reliable commercial database vendor that has a reporting arrangement
9.22with approved insurance education providers. If such data collection and reporting
9.23arrangements are not in place, an insurer must maintain records verifying that the producer
9.24has completed the annuity training course required under this subdivision and make the
9.25records available to the commissioner upon request.
9.26 Sec. 7. [72A.2034] PENALTIES.
9.27 Subdivision 1. Imposition. (a) An insurer is responsible for compliance with
9.28sections 72A.203 to 72A.2036. If a violation occurs, either because of the action or
9.29inaction of the insurer or its insurance producer, the commissioner may, in addition to any
9.30available penalties, remedies, or administrative actions, order:
9.31(1) an insurer to take reasonably appropriate corrective, including, but not limited
9.32to canceling a transaction action for any consumer harmed by the insurer's, or by its
9.33insurance producer's, violation of sections 72A.203 to 72A.2036;
10.1(2) a general agency, independent agency, or the insurance producer to take
10.2reasonably appropriate corrective action for any consumer harmed by the insurance
10.3producer's violation of sections 72A.203 to 72A.2036; and
10.4(3) appropriate penalties and sanctions.
10.5(b) Nothing in sections 72A.203 to 72A.2036 shall affect any obligation of an
10.6insurer for its acts of its insurance producers or consumer remedy or cause of action
10.7that is otherwise provided for under applicable federal or state law, including without
10.8limitation, chapter 60K.
10.9 Subd. 2. Aggravation or mitigation. Any applicable penalty for a violation of
10.10sections 72A.203 to 72A.2036 may be increased or decreased upon consideration of any
10.11aggravating or mitigating circumstances.
10.12 Sec. 8. [72A.2035] RECORD KEEPING.
10.13 Subdivision 1. Duration. Insurers and insurance producers shall maintain or be able
10.14to make available to the commissioner records of the information collected from the
10.15consumer and other information used in making the recommendations that were the basis
10.16for insurance transactions for ten years after the insurance transaction is completed by the
10.17insurer. An insurer is permitted, but shall not be required, to maintain documentation on
10.18behalf of an insurance producer.
10.19 Subd. 2. Medium. Records required to be maintained by sections 72A.203 to
10.2072A.2036 may be maintained in paper, photographic, microprocess, magnetic, mechanical,
10.21or electronic media or by any process that accurately reproduces the actual document.
10.22 Sec. 9. [72A.2036] RELATIONSHIP TO OTHER LAWS; ENFORCEMENT.
10.23(a) Nothing in sections 72A.203 to 72A.2036 shall be interpreted to:
10.24(1) preclude, preempt, or otherwise interfere with the application of any other laws
10.25of this state that may apply in any matter that is subject to sections 72A.203 to 72A.2036;
10.26(2) change, alter, or modify any of the obligations, duties, or responsibilities of
10.27insurers or insurance producers, pursuant to any orders of the commissioner or consent
10.28decrees in effect as of January 1, 2013; or
10.29(3) limit the commissioner's authority to make any investigation or take any action
10.30under chapter 45 or other applicable state law with respect to any insurer, producer,
10.31broker-dealer, third-party contractor, or other entity engaged in any activity involving the
10.32sale of an annuity that is subject to sections 72A.203 to 72A.2036.
10.33(b) In addition to any other penalties provided by the laws of this state, a violation of
10.34sections 72A.203 to 72A.2036 shall be considered a violation of section 72A.20.
11.1 Sec. 10. EFFECTIVE DATE.
11.2This act is effective January 1, 2013.
