Law:Title 7. Life Insurance And Annuities. Subtitle A. Life Insurance In General from Chapter 1115. Suitability Of Certain Annuity Transactions (Texas)

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Subtitle A. Life Insurance In General

Contents

Chapter 1115. Suitability Of Certain Annuity Transactions

Subchapter A. General Provisions

Section 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 to ensure that the insurance needs and financial objectives of the consumer as of the time of the transaction are appropriately addressed.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.002.  Definitions.

In this chapter:

(1)  "Agent" means an individual who holds a license under Chapter 4054 and who sells, solicits, or negotiates insurance or annuity contracts in this state.

(2)  "Annuity" means a fixed, variable, or modified guaranteed annuity that is individually solicited, whether classified as an individual annuity or group annuity.

(3)  "Insurer" means an insurance company authorized to engage in the business of life insurance and annuities in this state.

(4)  "Recommendation" means advice provided by an agent or  insurer to an individual consumer that results in a purchase or exchange of an annuity made in accordance with that advice.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.003.  Applicability; Exemptions.

(a) This chapter applies to any recommendation to purchase or exchange an annuity that:

(1)  is made to a consumer by an agent or insurer; and

(2)  results in the recommended purchase or exchange.

(b)  Unless otherwise specifically included, this chapter does not apply to recommendations involving:

(1)  direct response solicitations if there is no recommendation based on information collected from the consumer under this chapter; or

(2)  contracts used to fund:

(A)  an employee pension benefit plan or employee welfare benefit plan covered by the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.);

(B)  a plan described by Section 401(a), 401(k), 403(b), 408(k), or 408(p), Internal Revenue Code of 1986, if established or maintained by an employer;

(C)  a government or church plan, as defined by  Section 414, Internal Revenue Code of 1986, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization described under Section 457, Internal Revenue Code of 1986;

(D)  a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(E)  settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(F)  prepaid funeral benefits contracts, as defined by Chapter 154, Finance Code.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.004.  No Cause Of Action Created.

This chapter may not be construed to create or imply a private cause of action for a violation of this chapter.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.005.  Rules.

The commissioner may adopt reasonable rules in the manner prescribed by Subchapter A, Chapter 36, to accomplish and enforce the purpose of this chapter.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Subchapter B. Duties Of Insurers And Agents

Section 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:

(1)  information from the consumer concerning:

(A)  the consumer's financial status;

(B)  the consumer's tax status; and

(C)  the consumer's investment objectives; and

(2)  other relevant information used or considered to be reasonable by the agent or that insurer in making recommendations to consumers.

(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 the recommendation is suitable for that consumer based on the facts disclosed by the consumer regarding the consumer's:

(1)  investments and other insurance products; and

(2)  financial situation and needs.

(c)  An agent, or an insurer if an agent is not involved, has no obligation to a consumer related to a recommendation if the consumer:

(1)  refuses to provide relevant information requested by the agent or insurer;

(2)  fails to provide complete or accurate information on the request of the agent or insurer; or

(3)  decides to enter into a transaction that is not based on a recommendation of the agent or insurer.

(d)  An agent's or insurer's recommendation subject to Subsection (a) must be reasonable under all the circumstances actually known to the agent or insurer at the time of the recommendation.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.052.  Compliance System.

(a) Each insurer shall operate a system, that is reasonably designed to achieve compliance with this chapter, to supervise recommendations.

(b)  An insurer may comply with Subsection (a) by complying with Subsections (c)-(e) or by establishing and maintaining the insurer's own compliance system that complies with Subsection (c).  Each agent and independent agency shall adopt an insurer's compliance system  or shall establish and maintain such a system.

(c)  A compliance system established under Subsection (b)  must include:

(1)  maintenance of written procedures; and

(2)  periodic reviews of the insurer's or agent's records in a manner reasonably designed to assist in detecting and preventing violations of this chapter.

(d)  An agent or insurer may contract with a third party, including an agent or independent agency, to establish and maintain a compliance system with respect to agents under contract with or employed by the third party.  The agent or insurer shall make reasonable inquiries sufficient to ensure that the third party is performing the functions required under Subsection (a), and shall take any action reasonable under the circumstances to enforce the contractual obligation to perform those functions. An agent or insurer may comply with the obligation to make reasonable inquiries by:

(1)  annually obtaining certification from a senior manager of the third party that the third party is performing the required functions; and

(2)  periodically selecting third parties, based on reasonable selection criteria, for a review to determine whether the third parties are performing the required functions.

(e)  An agent or insurer shall adopt procedures for conducting a review under Subsection (d)(2) that are reasonable under the circumstances.  An insurer that contracts with a third party under Subsection (d) and that complies with the requirements to supervise under Subsection (d) is deemed to have complied with the insurer's responsibilities under Subsection (b).

(f)  An insurer, agent, or independent agency is not required by this section to:

(1)  review, or provide for review of, all agent-solicited transactions; or

(2)  include in the compliance system an agent's recommendations to consumers of products other than the annuities offered by the insurer, agent, or independent agency.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.053.  Certification Requirements.

(a) On request by an insurer, an agent or independent agency that contracts with an insurer under Section 1115.052(d) shall promptly obtain a certification as described under Section 1115.052(d)(1) or give a clear statement that it is unable to meet the certification criteria.

(b)  A person may not provide a certification under Section 1115.052(d)(1) unless the person:

(1)  is a senior manager with responsibility for the delegated functions; and

(2)  has a reasonable basis for making the certification.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.054.  Compliance With Certain National Standards. (a)

Compliance with the conduct rules of the Financial Industry Regulatory Authority relating to suitability, or the rules of another national organization recognized by the commissioner, satisfies the requirements under this chapter for the recommendation of annuities registered under the Securities Act of 1933 (15 U.S.C. Section 77a et seq.) or rules or regulations adopted under that Act.

(b)  This section does not affect or limit the commissioner's ability to enforce this chapter.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.

Amended by:

Acts 2009, 81st Leg., R.S., Ch. 1043, Sec. 1, eff. September 1, 2009.



Section 1115.055.  Recordkeeping Requirements.

(a) Each agent, independent agency, and insurer shall maintain, or otherwise be able to make available to the commissioner, records of the information collected from the consumer and other information used in making a recommendation that was the basis for a transaction subject to this chapter until the fifth anniversary of the date on which the transaction is completed by the insurer.

(b)  An insurer may, but is not required to, maintain documentation on behalf of an agent.

(c)  Records required to be maintained under this section may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media by any process that accurately reproduces the actual document.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.056.  Agent Education Requirements.

(a) A resident agent that intends to sell, solicit, or negotiate a contract for an annuity in this state or to represent an insurer in relation to such an annuity must submit evidence satisfactory to the department of completion of at least four hours of training relating to annuities before soliciting individual consumers for the purpose of selling annuities.

(b)  The training required under Subsection (a) may be used to satisfy the continuing education requirements imposed under this code and rules adopted under this code for issuance of a license under this code.

Added by Acts 2009, 81st Leg., R.S., Ch. 362, Sec. 1.001, eff. September 1, 2009.



Subchapter C. Enforcement

Section 1115.101.  Mitigation.

The 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.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.



Section 1115.102.  Sanctions.

(a) The commissioner may impose sanctions as provided by Chapter 82 for a violation of this chapter.

(b)  The commissioner may reduce or eliminate a sanction for a violation of this chapter otherwise applicable if corrective action for the consumer was taken promptly by the agent or insurer after a violation was discovered.

Added by Acts 2007, 80th Leg., R.S., Ch. 736, Sec. 1, eff. September 1, 2007.


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