February 24, 2011, Introduced by Reps. Constan, Smiley, Santana, Darany, Bauer, Geiss, Slavens, Liss, Barnett, Tlaib, Irwin, Hovey-Wright, Oakes, Rutledge, Cavanagh, Haugh, Switalski, Dillon, Segal, Durhal, McCann, Brunner, Meadows and Lipton and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 4151, 4153, 4155, and 4165 (MCL 500.4151,
500.4153, 500.4155, and 500.4165), as added by 2006 PA 399, and by
adding sections 4158, 4159, 4160, 4161, and 4162 and chapter 41B;
and to repeal acts and parts of acts.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 4151. As used in this chapter:
(a)
"Annuity" means a fixed annuity or variable an annuity
that is an insurance product under state law that is individually
solicited, whether the product is classified as an individual or
group annuity.
(b) "Insurance producer" or "producer" means insurance
producer as defined in section 1201 and includes a business entity
described in section 1205(2) that is licensed as an insurance
producer under this act.
(c) "Recommendation" means advice provided by an insurance
producer,
or an insurer where if no producer is involved, to an
individual
consumer that results in a purchase, or exchange, or
replacement of an annuity in accordance with that advice.
(d) "Replacement" or "replace" means a transaction in which a
new policy or contract is to be purchased, and it is known or
should be known to the proposing producer, or to the proposing
insurer if there is no producer, that by reason of the transaction,
an existing policy or contract has been or is to be 1 of the
following:
(i) Lapsed, forfeited, surrendered or partially surrendered,
assigned to the replacing insurer, or otherwise terminated.
(ii) Converted to reduced paid-up insurance, continued as
extended term insurance, or otherwise reduced in value by the use
of nonforfeiture benefits or other policy values.
(iii) Amended so as to effect either a reduction in benefits or
in the term for which coverage would otherwise remain in force or
for which benefits would be paid.
(iv) Reissued with any reduction in cash value.
(v) Used in a financed purchase.
(e) "Suitability information" means information that is
reasonably appropriate to determine the suitability of a
recommendation, including all of the following:
(i) Age.
(ii) Annual income.
(iii) Financial situation and needs, including the financial
resources used for the funding of the annuity.
(iv) Financial experience.
(v) Financial objectives.
(vi) Intended use of the annuity.
(vii) Financial time horizon.
(viii) Existing assets, including investment and life insurance
holdings.
(ix) Liquidity needs.
(x) Liquid net worth.
(xi) Risk tolerance.
(xii) Tax status.
Sec. 4153. (1) This chapter applies to any recommendation to
purchase, or
exchange, or replace an annuity made to a consumer by
an
insurance producer, or by an insurer where if no
producer is
involved,
that results in the purchase, or exchange, or replacement
recommended.
(2) This chapter does not apply to any recommendation to
purchase, or
exchange, or replace an annuity involving any of the
following:
(a)
Direct response solicitations where if there is no
recommendation based on information collected from the consumer.
(b) Contracts used to fund any of the following:
(i) An employee pension or welfare benefit plan that is covered
by
the employee retirement and income security act of 1974,
Public
Law 93-406.
(ii) A plan described by 26 USC 401(a), 26 USC 401(k), 26 USC
403(b), 26 USC 408(k), or 26 USC 408(p), if established or
maintained by an employer.
(iii) A government governmental or church plan
defined in 26 USC
414, a government or church welfare benefit plan, or a deferred
compensation plan of a state or local government or tax exempt
organization under 26 USC 457.
(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.
Sec. 4155. (1) In recommending to a consumer the purchase of
an annuity or the exchange of an annuity that results in another
insurance transaction or series of insurance transactions, the
insurance
producer, or the insurer where if
no 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 his or her investments and
other insurance products and as to his or her financial situation
and
needs, . including
the consumer's suitability information, and
that there is a reasonable basis to believe all of the following:
(a) In addition to the requirements under chapter 41b, the
consumer has been reasonably informed of various features of the
annuity, such as the potential surrender period and surrender
charge, 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.
(b) The consumer would benefit from certain features of the
annuity, such as tax-deferred growth, annuitization, or death or
living benefit.
(c) The particular annuity as a whole, the underlying
subaccounts to which funds are allocated at the time of purchase or
exchange of the annuity, and riders and similar product
enhancements, if any, are suitable and, for an exchange or
replacement, the transaction as a whole is suitable, for the
particular consumer based on his or her suitability information.
(d) For an exchange or replacement of an annuity, the exchange
or replacement is suitable including taking into consideration all
of the following:
(i) Whether the consumer 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 and similar product enhancements.
(ii) Whether the consumer would benefit from product
enhancements and improvements.
(iii) Whether the consumer has had another annuity exchange or
replacement and, in particular, an exchange or replacement within
the preceding 36 months.
(2)
Prior to the execution of a purchase, or exchange, or
replacement of an annuity resulting from a recommendation, an
insurance
producer, or an insurer where if
no producer is involved,
shall
make reasonable efforts to obtain all of the following
information:
the consumer's suitability
information.
(a)
The consumer's financial status.
(b)
The consumer's tax status.
(c)
The consumer's investment objectives.
(d)
Such other information used or considered to be reasonable
by
the insurance producer, or the insurer where no producer is
involved,
in making recommendations to the consumer.
(3)
Except as provided under subsection (4), neither an
insurance
producer, nor an insurer where no producer is involved,
shall
have any obligation to a consumer under subsection (1)
related
to any recommendation if a consumer does any of the
following:
(a)
Refuses to provide relevant information requested by the
insurer
or insurance producer.
(b)
Decides to enter into an insurance transaction that is not
based
on a recommendation of the insurer or insurance producer.
(c)
Fails to provide complete or accurate information.
(4)
An insurer or insurance producer's recommendation subject
to
subsection (1) shall be reasonable under all the circumstances
actually
known to the insurer or insurance producer at the time of
the
recommendation.
(3) Except as permitted under subsection (4), an insurer shall
not issue an annuity recommended to a consumer unless there is a
reasonable basis to believe that the annuity is suitable based on
the consumer's suitability information.
(4) An insurer's issuance of an annuity shall be reasonable
under all of the circumstances actually known to the insurer at the
time the annuity is issued. However, neither a producer nor an
insurer has any obligation to a consumer under subsection (1) or
(3) related to any annuity transaction if any of the following
apply:
(a) A recommendation is not made.
(b) A recommendation was made and was later found to have been
prepared based on materially inaccurate information provided by the
consumer.
(c) A consumer refuses to provide relevant suitability
information and the annuity transaction is not recommended.
(d) A consumer decides to enter into an annuity transaction
that is not based on a recommendation of the insurer or the
insurance producer.
(5) A producer or, if no producer is involved, the responsible
insurer representative, shall at the time of sale do all of the
following:
(a) Make a record of any recommendation subject to subsection
(1).
(b) Obtain a customer-signed statement documenting a
customer's refusal to provide suitability information, if any.
(c) Obtain a customer-signed statement acknowledging that an
annuity transaction is not recommended if a customer decides to
enter into an annuity transaction that is not based on the
producer's or insurer's recommendation.
Sec. 4158. (1) An insurer shall establish a supervision system
that is reasonably designed to achieve the insurer's and its
producers' compliance with this chapter, including, but not limited
to, all of the following:
(a) Maintain reasonable procedures to inform its producers of
the requirements of this chapter and incorporate the requirements
of this chapter into relevant producer training manuals.
(b) Establish standards for producer product training and
maintain reasonable procedures to require its producers to comply
with section 4160.
(c) Provide product-specific training and training materials
that explain all material features of its annuity products to its
producers.
(d) Maintain procedures for review of each recommendation
before issuance of an annuity that are designed to ensure that
there is a reasonable basis to determine that a recommendation is
suitable. Review procedures may apply a screening system for the
purpose of identifying selected transactions for additional review
and may be accomplished electronically or through other means,
including, but not limited to, physical review. An electronic or
other system may be designed to require additional review only of
those transactions identified for additional review by the
selection criteria.
(e) Maintain reasonable procedures to detect recommendations
that are not suitable. This may include, but is not limited to,
confirmation of consumer suitability information, systematic
customer surveys, interviews, confirmation letters, and programs of
internal monitoring. This subdivision does not prevent an insurer
from complying with this subdivision by applying sampling
procedures or by confirming suitability information after issuance
or delivery of the annuity.
(f) Annually provide a report to 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 corrective action taken or recommended, if
any.
(2) This section does not restrict an insurer from contracting
for performance of a function, including maintenance of procedures,
required under subsection (1). An insurer shall take appropriate
corrective action and may be subject to sanctions and penalties
under this act regardless of whether the insurer contracts for
performance of a function and regardless of the insurer's
compliance with subsection (3).
(3) An insurer's supervision system under this section shall
include supervision of contractual performance. This includes, but
is not limited to, the following:
(a) Monitoring and, as appropriate, conducting audits to
assure that the contracted function is properly performed.
(b) Annually obtaining a 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
function is properly performed.
(4) An insurer is not required to include in its system of
supervision a producer's recommendations to consumers of products
other than the annuities offered by the insurer.
Sec. 4159. A producer shall not dissuade, or attempt to
dissuade, a consumer from any of the following:
(a) Truthfully responding to an insurer's request for
confirmation of suitability information.
(b) Filing a complaint.
(c) Cooperating with the investigation of a complaint.
Sec. 4160. (1) A producer shall not solicit the sale of an
annuity product unless the producer has adequate knowledge of the
product to recommend the annuity and the producer is in compliance
with the insurer's standards for product training. A producer may
rely on insurer-provided product-specific training standards and
materials to comply with this subsection.
(2) A producer who engages in the sale of annuity products
shall complete a 1-time 4-credit training course approved by the
commissioner and provided by an insurance agent program of study
registered under chapter 12. Insurance producers who hold a life
insurance line of authority on the effective date of the amendatory
act that added this section and who desire to sell annuities shall
complete the requirements of this subsection within 6 months after
the effective date of the amendatory act that added this section.
Individuals who obtain a life insurance line of authority on or
after the effective date of the amendatory act that added this
section shall not engage in the sale of annuities until the annuity
training course required under this subsection has been completed.
(3) The minimum length of the training required under
subsection (2) shall be not less than 4 hours, as defined in
section 1204c, and may be longer.
(4) The training required under subsection (2) shall include
information on all of the following:
(a) The types of annuities and various classifications of
annuities.
(b) Identification of the parties to an annuity.
(c) How fixed, variable, and indexed annuity contract
provisions affect consumers.
(d) The application of income taxation of qualified and
nonqualified annuities.
(e) The primary uses of annuities.
(f) Appropriate sales practices and replacement and disclosure
requirements.
(5) Registered insurance agent programs of study shall cover
all topics under subsection (4) and shall not present any marketing
information or provide training on sales techniques or provide
specific information about a particular insurer's products.
Additional topics may be offered in conjunction with and in
addition to the topics under subsection (4).
(6) The satisfaction of the training requirements of another
state that are substantially similar to this section satisfies the
training requirements of this section.
(7) An insurer shall verify that an insurance producer has
completed the annuity training course required under this section
before allowing the producer to sell an annuity product for that
insurer. An insurer may satisfy its responsibility under this
section by obtaining certificates of completion of the training
course or obtaining reports provided by commissioner-sponsored
database systems or vendors or from a reasonably reliable
commercial database vendor that has a reporting arrangement with a
registered insurance agent program of study.
Sec. 4161. For a consumer purchasing an individual annuity,
the consumer shall be given a copy of the annuity policy at the
time the annuity is accepted and issued.
Sec. 4162. Notwithstanding section 4073 and in addition to any
right to revoke an annuity, a consumer has the right to cancel an
annuity within 15 days after its delivery and to have the entire
premium refunded if, after examination of the annuity, the consumer
is not satisfied for any reason. An annuity shall have a notice
prominently printed on the first page of the policy and on the
summary of coverage and the consumer shall also be provided a
separate notice entitled "right to cancel". The notices shall state
in plain English that the consumer has the right to return the
annuity within 15 days after its delivery and to have the entire
premium refunded if, after examination of the policy, the applicant
is not satisfied for any reason and shall contain an address where
a notice of cancellation can be sent. The consumer shall
acknowledge in writing the receipt of the separate right to cancel
notice. Cancellation occurs when the consumer mails a written
notice of cancellation to the address stated in the notice of
cancellation.
Sec.
4165. (1) An insurer or insurance producer that complies
with
the national association of securities dealers rules "NASD
Manual,
Conduct Rules section 2310 (CCH, 1966)" or rules at least
as
stringent as section 2310 pertaining to suitability satisfies
this
chapter's requirements for the recommendation of variable
annuities.
Subject to subsection (2), a sale
made in compliance
with financial industry regulatory authority requirements
pertaining to suitability and supervision of annuity transactions
that are not less stringent than this chapter satisfies this
chapter. This subsection applies to a financial industry regulatory
authority broker-dealer sale of a variable annuity or fixed annuity
if the suitability and supervision are similar to those applied to
variable annuity sales. However, this subsection does not limit the
commissioner's ability to enforce and investigate this chapter.
(2) Subsection (1) applies if the insurer does both of the
following:
(a) Monitors the financial industry regulatory authority
member broker-dealer using information collected in the normal
course of the insurer's business.
(b) Provides to the financial industry regulatory authority
member broker-dealer information and reports that are reasonably
appropriate to assist the financial industry regulatory authority
member broker-dealer to maintain its supervision system.
CHAPTER 41B
ANNUITY DISCLOSURES
Sec. 4175. As used in this chapter:
(a) "Annuity" means a group or individual annuity contract or
certificate.
(b) "Determinable elements" means elements that are derived
from processes or methods that are guaranteed at issue and not
subject to insurance company discretion, but where the values or
amounts cannot be determined until some point after issue. These
elements include the premiums, credited interest rates including
any bonus, benefits, values, non-interest-based credits, charges,
or elements of formulas used to determine any of these. These
elements may be described as guaranteed but not determined at
issue. An element is considered determinable if it was calculated
from underlying determinable elements only, or from both
determinable and guaranteed elements.
(c) "Generic name" means a short title descriptive of the
annuity contract being applied for or illustrated.
(d) "Guaranteed elements" means the premiums, credited
interest rates including any bonus, benefits, values, non-interest-
based credits, charges, or elements of formulas used to determine
any of these, that are guaranteed and determined at issue. An
element is considered guaranteed if all of the underlying elements
that go into its calculation are guaranteed.
(e) "Insurance producer" or "producer" means insurance
producer as defined in section 1201 and includes a business entity
described in section 1205(2) that is licensed as an insurance
producer under this act.
(f) "Nonguaranteed elements" means the premiums, credited
interest rates including any bonus, benefits, values, non-interest-
based credits, charges, or elements of formulas used to determine
any of these, that are subject to company discretion or are not
guaranteed at issue. An element is considered nonguaranteed if any
of the underlying nonguaranteed elements are used in its
calculation.
(g) "Structured settlement annuity" means a qualified funding
asset as defined in section 130(d) of the internal revenue code of
1986, 26 USC 130, or an annuity that would be a qualified funding
asset under section 130(d) of the internal revenue code of 1986, 26
USC 130, but for the fact that it is not owned by an assignee under
a qualified assignment.
Sec. 4177. (1) This chapter applies to all annuities except
the following:
(a) Registered or nonregistered variable annuities or other
registered products.
(b) Immediate and deferred annuities that contain no
nonguaranteed elements.
(c) Annuities used to fund any of the following:
(i) An employee pension or welfare benefit plan that is covered
by the employee retirement income security act of 1974, Public Law
93-406.
(ii) A plan described by 26 USC 401(a), 26 USC 401(k), or 26
USC 403(b) if established or maintained by an employer.
(iii) A governmental or church plan defined in 26 USC 414 or a
deferred compensation plan of a state or local government or tax-
exempt organization under 26 USC 457.
(iv) A nonqualified deferred compensation arrangement
established or maintained by an employer or plan sponsor.
(v) Structured settlement annuities.
(2) Notwithstanding subsection (1), this chapter does apply to
annuities used to fund a plan or arrangement that is funded solely
by contributions an employee elects to make whether on a pretax or
after-tax basis, and where the insurer has been notified that plan
participants may choose from among 2 or more fixed annuity
providers and there is a direct solicitation of an individual
employee by an insurance producer for the purchase of an annuity
contract. As used in this subsection, direct solicitation does not
include any meeting held by an insurance producer solely for the
purpose of educating or enrolling employees in the plan or
arrangement.
Sec. 4178. (1) If the application for an annuity contract is
taken in a face-to-face meeting, the applicant shall at or before
the time of application be given both the disclosure document
described in section 4179 and the buyer's guide described in
section 4181.
(2) If the application for an annuity contract is taken by
means other than in a face-to-face meeting, the applicant shall be
sent both the disclosure document described in section 4179 and the
buyer's guide described in section 4181 by no later than 5 business
days after the completed application is received by the insurer,
subject to the following:
(a) For an application received as a result of a direct
solicitation through the mail, both of the following apply:
(i) Providing a buyer's guide in a mailing inviting prospective
applicants to apply for an annuity contract satisfies the
requirement that the buyer's guide be provided no later than 5
business days after receipt of the application.
(ii) Providing a disclosure document in a mailing inviting a
prospective applicant to apply for an annuity contract satisfies
the requirement that the disclosure document be provided no later
than 5 business days after receipt of the application.
(b) For an application received via the internet, both of the
following apply:
(i) Taking reasonable steps to make the buyer's guide available
for viewing and printing on the insurer's website satisfies the
requirement that the buyer's guide be provided no later than 5
business days of receipt of the application.
(ii) Taking reasonable steps to make the disclosure document
available for viewing and printing on the insurer's website
satisfies the requirement that the disclosure document be provided
no later than 5 business days after receipt of the application.
(c) A solicitation for an annuity contract provided in other
than a face-to-face meeting shall include a statement that the
proposed applicant may contact the office of financial and
insurance regulation for a free annuity buyer's guide or may
include a statement that the prospective applicant may contact the
insurer for a free annuity buyer's guide.
(3) If the buyer's guide and disclosure document are not
provided at or before the time of application, a free look period
of no less than 15 days shall be provided for the applicant to
return the annuity contract without penalty. This free look shall
run concurrently with any other free look provided under state law
or regulation.
Sec. 4179. A disclosure document required to be provided under
section 4178 shall use terms defined in language that facilitates
the understanding by a typical person within the segment of the
public to which the disclosure document is directed and shall
contain all of the following information at a minimum:
(a) The generic name of the contract, the company product
name, if different, and form number, and the fact that it is an
annuity.
(b) The insurer's name and address.
(c) A description of the contract and its benefits,
emphasizing its long-term nature, including examples if appropriate
of all of the following:
(i) The guaranteed, nonguaranteed, and determinable elements of
the contract, and their limitations, if any, and an explanation of
how they operate.
(ii) An explanation of the initial crediting rate, specifying
any bonus or introductory portion, the duration of the rate, and
the fact that rates may change from time to time and are not
guaranteed.
(iii) Periodic income options both on a guaranteed and
nonguaranteed basis.
(iv) Any value reductions caused by withdrawals from or
surrender of the contract.
(v) How values in the contract can be accessed.
(vi) The death benefit, if available, and how it will be
calculated.
(vii) A summary of the federal tax status of the contract and
any penalties applicable on withdrawal of values from the contract.
(viii) The impact of any rider, such as a long-term care rider.
(d) Specific dollar amount or percentage charges and fees with
an explanation of how they apply.
(e) Information about the current guaranteed rate for new
contracts that contains a clear notice that the rate is subject to
change.
Sec. 4181. The commissioner shall prepare and, beginning
January 1, 2012 and annually thereafter, shall publish a buyer's
guide to annuities as provided in this section. The buyer's guide
to annuities shall be written in plain English and shall contain an
explanation of all of the following:
(a) What an annuity is.
(b) The different kinds of annuities.
(c) How interest rates are set.
(d) Charges that may be subtracted from an annuity.
(e) Tax treatment of annuities.
(f) How to determine whether an annuity is a right choice.
Sec. 4182. For annuities in the payout period with changes in
nonguaranteed elements and for the accumulation period of a
deferred annuity, the insurer shall provide each contract owner
with a report, at least annually, on the status of the contract
that contains at least all of the following information:
(a) The beginning and end date of the current report period.
(b) The accumulation and cash surrender value, if any, at the
end of the previous report period and at the end of the current
report period.
(c) The total amounts, if any, that have been credited,
charged to the contract value, or paid during the current report
period.
(d) The amount of outstanding loans, if any, as of the end of
the current report period.
Enacting section 1. Section 4157 of the insurance code of
1956, 1956 PA 218, MCL 500.4157, is repealed.
Enacting section 2. This amendatory act takes effect 9 months
after the date it is enacted into law.