Bill Text: PA HB1119 | 2009-2010 | Regular Session | Amended

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Bill Title: Providing for suitability of annuity transactions.

Spectrum: Partisan Bill (Democrat 12-0)

Status: (Engrossed - Dead) 2009-06-17 - Referred to BANKING AND INSURANCE [HB1119 Detail]

Download: Pennsylvania-2009-HB1119-Amended.html

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PRIOR PRINTER'S NO. 1322 PRINTER'S NO. 2159
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 1119 Session of2009
INTRODUCED BY DeLUCA, D. COSTA, FABRIZIO, PASHINSKI, GIBBONS, MELIO, SEIP, R. TAYLOR, WALKO, KORTZ, GALLOWAY AND CALTAGIRONE, MARCH 26, 2009
AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES, JUNE 15, 2009
AN ACT
Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
act relating to insurance; amending, revising, and
consolidating the law providing for the incorporation of
insurance companies, and the regulation, supervision, and
protection of home and foreign insurance companies, Lloyds
associations, reciprocal and inter-insurance exchanges, and
fire insurance rating bureaus, and the regulation and
supervision of insurance carried by such companies,
associations, and exchanges, including insurance carried by
the State Workmen's Insurance Fund; providing penalties; and
repealing existing laws," providing for suitability of
annuity transactions.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. The act of May 17, 1921 (P.L.682, No.284), known
as The Insurance Company Law of 1921, is amended by adding an
article to read:
ARTICLE IV-B
SUITABILITY OF ANNUITY TRANSACTIONS
Section 401-B. Definitions.
The following words and phrases when used in this article
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Annuity." A fixed annuity or variable annuity that is
individually solicited, whether the product is classified as an
individual or group annuity.
"Commissioner." The Insurance Commissioner of the
Commonwealth.
"General agent." An insurance producer that provides
supervision on behalf of an insurer to an insurer's sales force
in a particular geographic region or territory.
"Independent agency." A producer entity that does not
exclusively represent one insurance company.
"Insurance producer." A person who sells, solicits or
negotiates contracts of insurance as defined in section 601-A of
the act of May 17, 1921 (P.L.789, No.285), known as The
Insurance Department Act of 1921.
"Insurer." A life insurance company licensed or required to
be licensed under section 202 or a fraternal benefit society as
defined in section 2403.
"Recommendation." Advice provided by an insurance producer,
or an insurer where no producer is involved, to an individual
consumer that results in a purchase or exchange of an annuity in
accordance with that advice.
Section 402-B. Applicability and scope.
(a) General rule.--This article shall apply to any
recommendation to purchase or exchange an annuity made to a
consumer by an insurance producer, or an insurer where no
producer is involved, that results in the purchase or exchange
recommended.
(b) Exclusions.--Unless otherwise specifically included,
this article shall not apply to recommendations involving the
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following:
(1) Direct response solicitations where there is no
recommendation based on information collected from the
consumer pursuant to this article.
(2) Annuity contracts used to fund:
(i) An employee pension or welfare benefit plan that
is covered by the Employee Retirement Income Security Act
of 1974 (Public Law 93-406, 88 Stat. 829).
(ii) A plan described by sections 401(a) or (k),
403(b), 408(k) or (p) of the Internal Revenue Code of
1986 (Public Law 99-514, 26 U.S.C. §§ 401(a) or (k),
403(b), 408(k) or (p)), when the plan, for purposes of
the Employee Retirement Income Security Act of 1974, is
established or maintained by an employer.
(iii) A governmental or church plan defined in
section 414 of the Internal Revenue Code of 1986 or a
deferred compensation plan of a State or local government
or tax exempt organization under section 457 of the
Internal Revenue Code of 1986.
(iv) A nonqualified deferred compensation
arrangement established or maintained by an employer or
plan sponsor.
(v) Settlements of or assumptions of liabilities
associated with personal injury litigation or any dispute
or claim resolution process.
(vi) Formal prepaid funeral contracts.
Section 403-B. Duties of insurers and insurance producers.
(a) General duties.--In making a recommendation to a
consumer for the purchase of an annuity or the exchange of an
annuity that results in another insurance transaction or series
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of insurance transactions, the insurance producer, or the
insurer where no insurance producer is involved, shall have
reasonable grounds for believing that the recommendation is
suitable for the consumer on the basis of the facts disclosed by
the consumer as to the consumer's investments and other
insurance products and as to the consumer's financial situation
and needs.
(b) Consumer information.--Prior to the execution of a
purchase or exchange of an annuity resulting from a
recommendation, an insurance producer, or an insurer where no
insurance producer is involved, shall make reasonable efforts to
obtain information concerning all of the following:
(1) The consumer's financial status.
(2) The consumer's tax status.
(3) The consumer's investment objectives.
(4) Other information used or considered to be
reasonable by the insurance producer, or the insurer where no
insurance producer is involved, in making recommendations to
the consumer.
(c) Obligation limits.--
(1) Neither an insurance producer nor an insurer where
no insurance producer is involved shall have any obligation
to a consumer under subsection (a) related to any
recommendation that is reasonable under all the circumstances
actually known to the insurer or insurance producer at the
time of the recommendation when a consumer:
(i) Refuses to provide relevant information
requested by the insurer or insurance producer.
(ii) Decides to enter into an insurance transaction
that is not based on a recommendation of the insurer or
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insurance producer.
(iii) Fails to provide complete or accurate
information.
(d) Supervision of recommendations.--
(1) An insurer shall assure that a system to supervise
recommendations that is reasonably designed to achieve
compliance with this article is established and maintained by
complying with paragraphs (3) and (4), or shall establish and
maintain such a system that includes at least the following:
(i) Maintaining written procedures.
(ii) Conducting periodic reviews of its records that
are reasonably designed to assist in detecting and
preventing violations of this article.
(2) A general agent or independent agency shall adopt a
system established by an insurer to supervise recommendations
of its insurance producers that is reasonably designed to
achieve compliance with this article, or shall establish and
maintain a system that is reasonably designed to achieve
compliance with this article. The system must include at
least the following:
(i) Maintaining written procedures.
(ii) Conducting periodic reviews of records that are
reasonably designed to assist in detecting and preventing
violations of this article.
(3) An insurer may contract with a third party,
including a general agent or independent agency, to establish
and maintain a system of supervision as required by paragraph
(1) with respect to insurance producers under contract with
or employed by the third party.
(4) An insurer shall make reasonable inquiry to assure
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that the third party contracting under paragraph (3) is
performing the functions required under paragraph (1) and
shall take such action as is reasonable under the
circumstances to enforce the contractual obligation to
perform the functions. An insurer may comply with its
obligation to make reasonable inquiry by doing both of the
following:
(i) The insurer annually obtains, electronically or
otherwise,a certification from a third party senior
manager who has responsibility for the delegated
functions that the manager has a reasonable basis to
represent, and does represent, that the third party is
performing the required functions.
(ii) The insurer, based on reasonable selection
criteria, periodically selects third parties contracting
under paragraph (3) for a review to determine whether the
third parties are performing the required functions. The
insurer shall perform procedures to conduct the review
that are reasonable under the circumstances.
(5) An insurer that contracts with a third party under <--
paragraph (3) that complies with the requirements to
supervise under paragraph (4) shall have fulfilled its
responsibilities under paragraph (1).
(6) An insurer, general agent or independent agency is
not required to do either of the following:
(i) Review or provide for review of all insurance
producer-solicited transactions.
(ii) Include in its system of supervision an
insurance producer's recommendations to consumers of
products other than the annuities offered by the insurer,
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general agent or independent agency.
(6) (7) A general agent or independent agency <--
contracting with an insurer pursuant to paragraph (3) shall
promptly, when requested by the insurer pursuant to paragraph
(4), give a certification as described in paragraph (4) or
give a clear statement that it is unable to meet the
certification criteria.
(7) (8) No person may provide a certification under <--
paragraph (4)(i) unless both the following conditions are
met:
(i) The person is a senior manager with
responsibility for the delegated functions.
(ii) The person has a reasonable basis for making
the certification.
(e) Compliance with other rules.--Compliance with the
Financial Industry Regulatory Authority Conduct Rules pertaining
to suitability shall satisfy the requirements under this section
for the recommendation of annuities registered under the
Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77a et seq.) or
rules and regulations adopted under the Securities Act of 1933.
Nothing in this subsection shall limit the commissioner's
ability to enforce the provisions of this article.
(f) Internal audit and compliance procedures.--Nothing in
this article shall exonerate an insurer from the internal audit
and compliance procedure requirements under section 405-A.
Section 404-B. Mitigation of responsibility.
(a) Corrective actions.--The commissioner may order:
(1) An insurer to take reasonably appropriate corrective
action for any consumer harmed by the insurer's or by its
insurance producer's violation of this article.
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(2) An insurance producer to take reasonably appropriate
corrective action for any consumer harmed by the insurance
producer's violation of this article.
(3) A general agent or independent agency that employs
or contracts with an insurance producer to sell or solicit
the sale of annuities to consumers, to take reasonably
appropriate corrective action for any consumer harmed by the
insurance producer's violation of this article.
(b) Reduction of penalty.--Any applicable penalty permitted
under section 406-B may be reduced or eliminated if corrective
action for the consumer was taken promptly after a violation was
discovered.
Section 405-B. Recordkeeping.
An insurer, general agent, independent agency and insurance
producer shall maintain or be able to make available to the
commissioner records of the information collected from the
consumer and other information used in making the
recommendations that were the basis for insurance transactions
for five years after the insurance transaction is completed by
the insurer. An insurer is permitted but shall not be required
to maintain documentation on behalf of an insurance producer.
Section 406-B. Enforcement.
(a) Penalties and remedies.--Upon a determination by hearing
that this article has been violated, the commissioner may pursue
one or more of the following courses of action:
(1) Issue an order requiring the person in violation to
cease and desist from engaging in the violation.
(2) Suspend or revoke or refuse to issue or renew the
certificate or license of the person in violation.
(3) Impose a civil penalty of not more than $5,000 for
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each violation.
(4) Impose any other penalty or remedy deemed
appropriate by the commissioner, including restitution.
(b) Other remedies.--The enforcement remedies imposed under
this section are in addition to any other remedies or penalties
that may be imposed by any other applicable statute, including
the act of July 22, 1974 (P.L.589, No.205), known as the Unfair
Insurance Practices Act. Violations of this article are deemed
and defined by the commissioner to be an unfair method of
competition and an unfair or deceptive act or practice pursuant
to the Unfair Insurance Practices Act.
Section 407-B. Private cause of action.
Nothing in this article shall be construed to create or imply
a private cause of action for a violation of this article.
Section 408-B. Rules and regulations.
The Insurance Department shall promulgate such rules and
regulations that are necessary for the administration and
enforcement of this article.
Section 2. This act shall take effect in 60 180 days. <--
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