Bill Text: TX SB1415 | 2011-2012 | 82nd Legislature | Introduced
Bill Title: Relating to the suitability of certain annuity transactions.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2011-03-22 - Referred to State Affairs [SB1415 Detail]
Download: Texas-2011-SB1415-Introduced.html
82R9754 AJA-F | ||
By: Williams | S.B. No. 1415 |
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relating to the suitability of certain annuity transactions. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Section 1115.001, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.001. PURPOSE. The purpose of this chapter is to | ||
establish standards and procedures regarding recommendations made | ||
to a consumer that result in a transaction involving annuity | ||
products, and to require insurers to establish a system to | ||
supervise those recommendations, to ensure that the insurance needs | ||
and financial objectives of the consumer as of the time of the | ||
transaction are appropriately addressed. | ||
SECTION 2. Section 1115.002, Insurance Code, is amended by | ||
adding Subdivision (5) to read as follows: | ||
(5) "Suitability information" means information that | ||
is reasonably appropriate to determine the suitability of a | ||
recommendation, including the following: | ||
(A) age; | ||
(B) annual income; | ||
(C) financial situation and needs, including the | ||
financial resources used for the funding of the annuity; | ||
(D) financial experience; | ||
(E) financial objectives; | ||
(F) intended use of the annuity; | ||
(G) financial time horizon; | ||
(H) existing assets, including investment and | ||
life insurance holdings; | ||
(I) liquidity needs; | ||
(J) liquid net worth; | ||
(K) risk tolerance; and | ||
(L) tax status. | ||
SECTION 3. Section 1115.003(a), Insurance Code, is amended | ||
to read as follows: | ||
(a) This chapter applies to any recommendation to purchase, | ||
replace, or exchange an annuity that: | ||
(1) is made to a consumer by an agent or insurer; and | ||
(2) results in the recommended purchase, replacement, | ||
or exchange. | ||
SECTION 4. Section 1115.051, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.051. SUITABILITY OF ANNUITY PRODUCT REQUIRED. | ||
(a) Before the execution of a purchase or exchange of an annuity | ||
resulting from a recommendation, an agent, or the insurer if an | ||
agent is not involved, must make reasonable efforts to obtain[ |
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(1) [ |
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(2) [ |
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(3) [ |
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(b) In a recommendation to a consumer regarding the purchase | ||
of an annuity or the exchange of an annuity that results in another | ||
insurance transaction or series of insurance transactions, an agent | ||
or the insurer, if an agent is not involved, has reasonable grounds | ||
for believing that: | ||
(1) on the basis of [ |
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consumer regarding the consumer's[ |
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the consumer's [ |
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consumer's suitability information, the recommendation is suitable | ||
for the consumer; | ||
(2) the consumer has been reasonably informed of the | ||
various features of the annuity, such as the potential surrender | ||
period and surrender charge, any potential tax penalty if the | ||
consumer sells, exchanges, surrenders, or annuitizes the annuity, | ||
mortality and expense fees, investment advisory fees, potential | ||
charges for and features of riders, limitations on interest | ||
returns, insurance and investment components, and market risk; | ||
(3) the consumer would benefit from certain features | ||
of the annuity, such as tax-deferred growth, annuitization, or a | ||
death or living benefit; | ||
(4) the particular annuity as a whole, the underlying | ||
subaccounts to which funds are allocated at the time of the purchase | ||
or exchange of the annuity, and any riders or similar product | ||
enhancements are suitable, and, in the case of an exchange or | ||
replacement, the transaction as a whole is suitable, for the | ||
particular consumer based on the consumer's suitability | ||
information; and | ||
(5) in the case of an exchange or replacement of an | ||
annuity, the exchange or replacement is suitable, including taking | ||
into consideration whether the consumer: | ||
(A) will incur a surrender charge, be subject to | ||
the commencement of a new surrender period, lose existing benefits | ||
such as death, living, or other contractual benefits, or be subject | ||
to increased fees, investment advisory fees, or charges for riders | ||
or similar product enhancements; | ||
(B) would benefit from product enhancements and | ||
improvements; and | ||
(C) has had another annuity exchange or | ||
replacement, and in particular, an exchange or replacement in the | ||
preceding 36 months. | ||
(c) Before the execution of a purchase, exchange, or | ||
replacement of an annuity resulting from a recommendation, an | ||
agent, or an insurer if an agent is not involved, shall make | ||
reasonable efforts to obtain the consumer's suitability | ||
information. | ||
(d) Except as permitted by Subsection (e), an insurer may | ||
not issue an annuity recommended to a consumer unless the insurer | ||
has a reasonable basis to believe the annuity is suitable based on | ||
the consumer's suitability information. | ||
(e) [ |
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involved, has no obligation to a consumer related to a | ||
recommendation if [ |
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(1) the consumer refuses to provide relevant | ||
information requested by the agent or insurer and the annuity | ||
transaction is not recommended; | ||
(2) the consumer received a recommendation that was | ||
made and was later found to have been prepared based on materially | ||
inaccurate information provided by the consumer; [ |
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(3) the consumer decides to enter into a transaction | ||
that is not based on a recommendation of the agent or insurer; or | ||
(4) a recommendation is not made. | ||
(f) [ |
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Subsection (b) [ |
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actually known to the agent or insurer at the time of the | ||
recommendation. | ||
(g) An agent, or the responsible insurer if an agent is not | ||
involved, shall at the time of sale of an annuity: | ||
(1) make a record of any recommendation made by the | ||
agent or insurer that is subject to this chapter; | ||
(2) obtain a customer-signed statement documenting | ||
the customer's refusal, if any, to provide suitability information; | ||
and | ||
(3) obtain a customer-signed statement acknowledging | ||
that an annuity transaction is not recommended if the customer | ||
decides to enter into an annuity transaction that is not based on | ||
the agent's or insurer's recommendation. | ||
(h) An agent may not dissuade, or attempt to dissuade, a | ||
consumer from: | ||
(1) truthfully responding to an insurer's request for | ||
confirmation or suitability information; | ||
(2) filing a complaint; or | ||
(3) cooperating with the investigation of a complaint. | ||
SECTION 5. Section 1115.052, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.052. SUPERVISION [ |
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insurer shall operate a system, that is reasonably designed to | ||
achieve the insurer's and the insurer's agents' compliance with this | ||
chapter, to supervise recommendations. | ||
(b) [ |
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Subsection (a) [ |
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(1) include reasonable procedures to inform the | ||
insurer's agents of the requirements of this chapter and | ||
incorporate the requirements of this chapter into relevant agent | ||
training manuals [ |
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(2) establish standards for agent product training and | ||
maintain reasonable procedures to require the insurer's agents to | ||
comply with the requirements of Section 1115.056; | ||
(3) provide product-specific training and training | ||
materials that explain all material features of the insurer's | ||
annuity products to the insurer's agents; | ||
(4) maintain procedures to review each recommendation | ||
electronically, physically, or otherwise before the issuance of an | ||
annuity that: | ||
(A) are designed to ensure that there is a | ||
reasonable basis to determine that a recommendation is suitable; | ||
and | ||
(B) may: | ||
(i) include the application of a screening | ||
system to identify selected transactions for additional review; and | ||
(ii) be designed to require additional | ||
review only of those transactions identified for additional review | ||
by the selection criteria; | ||
(5) maintain reasonable procedures, such as | ||
confirmation of consumer suitability information, systematic | ||
customer surveys, interviews, confirmation letters, and programs | ||
of internal monitoring, to detect recommendations that are not | ||
suitable, which may involve applying sampling procedures or | ||
confirming suitability information after the issuance or delivery | ||
of the annuity; and | ||
(6) annually provide a report to the insurer's senior | ||
management, including to the senior manager responsible for audit | ||
functions, that details a review, with appropriate testing, | ||
reasonably designed to determine the effectiveness of the | ||
supervision system, the exceptions found, and any corrective action | ||
taken or recommended [ |
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(c) This section does not prohibit an insurer from | ||
contracting for the performance of a function, including | ||
maintenance of procedures, required by Subsection (a). An insurer | ||
is responsible for taking appropriate corrective action and may be | ||
subject to sanctions and penalties under Section 1115.102 | ||
regardless of whether the insurer contracts for performance of a | ||
function and regardless of the insurer's compliance with Subsection | ||
(d). | ||
(d) An insurer's supervision system under this section must | ||
include the supervision of contractual performance under this | ||
subsection that includes, at a minimum [ |
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(1) annually obtaining 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 contracted function is properly performed [ |
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(2) monitoring and, as appropriate, conducting audits | ||
to ensure that the contracted function is properly performed | ||
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(e) [ |
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required by this section to[ |
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products other than the annuities offered by the insurer[ |
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SECTION 6. Section 1115.054, Insurance Code, is amended by | ||
amending Subsection (a) and adding Subsection (c) to read as | ||
follows: | ||
(a) Subject to Subsection (c), compliance [ |
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the conduct rules of the Financial Industry Regulatory Authority | ||
(FINRA) relating to suitability and supervision of annuity | ||
transactions, or the rules of another national organization | ||
recognized by the commissioner, satisfies the requirements of | ||
[ |
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under the Securities Act of 1933 (15 U.S.C. Section 77a et seq.) or | ||
rules or regulations adopted under that Act. | ||
(c) Subsection (a) applies only if the insurer: | ||
(1) monitors the FINRA member broker-dealer using | ||
information collected in the normal course of the insurer's | ||
business; and | ||
(2) provides to the FINRA member broker-dealer | ||
information and reports that are reasonably appropriate to assist | ||
the broker-dealer to maintain the broker-dealer's supervision | ||
system. | ||
SECTION 7. Section 1115.101, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.101. MITIGATION. An insurer is responsible for | ||
compliance with this chapter. If a violation occurs because of the | ||
action or inaction of the insurer or the insurer's agent, the [ |
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commissioner may order: | ||
(1) an insurer to take reasonable appropriate | ||
corrective action for any consumer harmed by the insurer or by the | ||
insurer's agent because of a violation of this chapter; | ||
(2) an agent to take reasonably appropriate corrective | ||
action for any consumer harmed by the agent's violation of this | ||
chapter; and | ||
(3) a managing general agent or independent agency | ||
that employs or contracts with an agent to sell, or solicit the sale | ||
of, annuities to consumers to take reasonably appropriate | ||
corrective action for any consumer harmed by the agent's violation | ||
of this chapter. | ||
SECTION 8. Section 1115.053, Insurance Code, is repealed. | ||
SECTION 9. Chapter 1115, Insurance Code, as amended by this | ||
Act, applies only to a recommendation to purchase, exchange, or | ||
replace an annuity contract made on or after January 1, 2012, and | ||
any transaction arising from that recommendation. A recommendation | ||
made before January 1, 2012, and a transaction arising from that | ||
recommendation are governed by the law in effect immediately before | ||
the effective date of this Act, and that law is continued in effect | ||
for that purpose. | ||
SECTION 10. This Act takes effect September 1, 2011. |