Bill Text: MN SF574 | 2013-2014 | 88th Legislature | Engrossed
Bill Title: Insurance annuity products regulation and annuity model regulation enactment
Sponsorship: Bipartisan Bill
Status: (Introduced - Dead) 2013-04-25 - HF substituted on General Orders HF791 [SF574 Detail]
Download: Minnesota-2013-SF574-Engrossed.html
1.2relating to insurance; regulating annuity products; enacting and modifying
1.3a model regulation adopted by the National Association of Insurance
1.4Commissioners relating to suitability in annuity transactions;proposing coding
1.5for new law in Minnesota Statutes, chapter 72A.
1.6BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.7 Section 1. [72A.203] EXEMPTIONS.
1.8Unless otherwise specifically included, sections 72A.203 to 72A.2036 do not apply
1.9to transactions involving:
1.10(1) direct response solicitations where there is no recommendation based on
1.11information collected from the consumer pursuant to sections 72A.203 to 72A.2036;
1.12(2) contracts used to fund group plans under:
1.13(i) an employee pension or welfare benefit plan that is covered by the Employee
1.14Retirement and Income Security Act of 1974 (ERISA), United States Code, title 29,
1.15sections 1001 to 1461;
1.16(ii) a plan described by section 401(a), 401(k), 403(b), 408(k), or 408(p) of the
1.17Internal Revenue Code of 1986; as amended, if established or maintained by an employer;
1.18(iii) a government or church plan defined in section 414 of the Internal Revenue
1.19Code of 1986 as amended, a government or church welfare benefit plan, or a deferred
1.20compensation plan of a state or local government or tax-exempt organization under section
1.21457 of the Internal Revenue Code of 1986, as amended; or
1.22(iv) a nonqualified deferred compensation arrangement established or maintained by
1.23an employer or plan sponsor; and
2.1(3) contracts used to fund, unless there is a recommendation to a consumer regarding
2.2an annuity in which case sections 72A.203 to 72A.2036 do apply with respect to the
2.3consumer annuity transaction:
2.4(i) settlements of or assumptions of liabilities associated with personal injury
2.5litigation or a dispute or claim resolution process; or
2.6(ii) formal prepaid funeral contracts.
2.7 Sec. 2. [72A.2031] DEFINITIONS.
2.8 Subdivision 1. Definitions. For purposes of sections 72A.203 to 72A.2036, the
2.9terms defined in this section have the meanings given them.
2.10 Subd. 2. Annuity. "Annuity" means an annuity that is an insurance product under
2.11state law that is individually solicited, whether the product is classified as an individual or
2.12group annuity.
2.13 Subd. 3. Broker-dealer. "Broker-dealer" means a person engaged in the business
2.14of effecting transactions in securities for the account of others or for the person's own
2.15account. The term does not include:
2.16(1) an agent;
2.17(2) an issuer;
2.18(3) a depository institution; provided such activities are conducted in accordance
2.19with such rules as may be adopted by the administrator;
2.20(4) an international banking institution; or
2.21(5) a person excluded by rule adopted or order issued under this chapter.
2.22 Subd. 4. Continuing education credit or CE credit. "Continuing education credit"
2.23or "CE credit" means one continuing education credit earned pursuant to section 45.30,
2.24subdivision 4.
2.25 Subd. 5. Continuing education provider or CE provider. "Continuing education
2.26provider" or "CE provider" means an approved education provider under chapter 45.
2.27 Subd. 6. FINRA. "FINRA" means the Financial Industry Regulatory Authority
2.28or a succeeding agency.
2.29 Subd. 7. Insurer. "Insurer" means a company required to be licensed under the laws
2.30of this state to provide insurance products, including annuities.
2.31 Subd. 8. Insurance producer. "Insurance producer" means a person required to
2.32be licensed under the laws of this state to sell, solicit, or negotiate insurance, including
2.33annuities.
2.34 Subd. 9. Registered principal. "Registered principal" means persons associated
2.35with a FINRA member broker-dealer, who are actively engaged in the management of
3.1the FINRA member broker-dealer investment banking or securities business, including
3.2supervision, solicitation, conduct of business, or the training of persons associated with a
3.3FINRA member broker-dealer for any of these functions.
3.4 Subd. 10. Replacement. "Replacement" means a transaction in which a new policy
3.5or contract is to be purchased, and it is known or should be known to the proposing producer,
3.6or the proposing insurer, whether or not there is an insurance producer, that by reason of
3.7the transaction, an existing policy or contract has been or is to be any of the following:
3.8(1) lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing
3.9insurer, or otherwise terminated;
3.10(2) converted to reduced paid-up insurance, continued as extended term insurance,
3.11or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;
3.12(3) amended so as to effect either a reduction in benefits or in the term for which
3.13coverage would otherwise remain in force or for which benefits would be paid;
3.14(4) reissued with any reduction in cash value; or
3.15(5) used in a financed purchase.
3.16 Subd. 11. Suitability information. "Suitability information" means information
3.17that is reasonably appropriate to determine the suitability of a recommendation, including
3.18but not limited to the following:
3.19(1) age;
3.20(2) annual income and anticipated material changes in annual income;
3.21(3) financial situation and needs, including the financial resources used for the funding
3.22of the annuity, and including anticipated material changes in financial situation and needs;
3.23(4) financial experience;
3.24(5) financial objectives;
3.25(6) intended use of the annuity;
3.26(7) financial time horizon;
3.27(8) existing assets, including investment and life insurance holdings and anticipated
3.28material changes in existing assets;
3.29(9) liquidity needs and anticipated material changes in liquidity needs;
3.30(10) liquid net worth and anticipated material changes in liquid net worth;
3.31(11) risk tolerance;
3.32(12) tax status; and
3.33(13) whether or not the consumer has a reverse mortgage.
3.34 Sec. 3. [72A.2032] DUTIES OF INSURERS AND INSURANCE PRODUCERS.
4.1 Subdivision 1. Suitability standard. In recommending under sections 72A.20,
4.2subdivision 34, and 60K.46, subdivision 4, to a consumer the purchase of an annuity or the
4.3exchange of an annuity that results in another insurance transaction or series of insurance
4.4transactions, the insurance producer, or the insurer where no producer is involved, shall
4.5have reasonable grounds for believing, after a reasonable inquiry, that the recommendation
4.6is suitable for the consumer, under the totality of the circumstances based on the facts
4.7disclosed by the consumer as to the consumer's investments and other insurance products
4.8and as to the consumer's financial situation and needs, including the consumer's suitability
4.9information, and that there is a reasonable basis to believe all of the following:
4.10(1) the consumer has been reasonably informed of various features of the annuity,
4.11such as the potential surrender period and surrender charge, potential tax penalty if the
4.12consumer sells, exchanges, surrenders, redeems, or annuitizes the annuity, mortality and
4.13expense fees, investment advisory fees, potential charges for and features of riders,
4.14limitations on interest returns, insurance and investment components, and market risk;
4.15(2) the consumer would receive a tangible net benefit from the transaction;
4.16(3) for the particular consumer based on the consumer's suitability information:
4.17(i) the particular annuity as a whole, the underlying subaccounts to which funds
4.18are allocated at the time of purchase or exchange of the annuity, and riders and similar
4.19product enhancements, if any, are suitable; and
4.20(ii) in the case of an exchange or replacement, the transaction as a whole is suitable
4.21taking into account, among other things, the age of the consumer; and
4.22(4) in the case of an exchange or replacement of an annuity, the exchange or
4.23replacement is suitable including taking into consideration all of the following:
4.24(i) the consumer will incur a surrender charge; be subject to the commencement of a
4.25new surrender period; lose existing benefits, such as death, living, or other contractual
4.26benefits; or be subject to increased fees, investment advisory fees, or charges for riders
4.27and similar product enhancements;
4.28(ii) the consumer would receive a tangible net benefit from the transaction, and
4.29in the case of a person 65 years of age or older, neither a producer nor an insurer shall
4.30recommend a replacement or exchange of an annuity that requires the insured to pay
4.31a surrender charge for the annuity being replaced or exchanged if the replacement or
4.32exchange does not confer a substantial financial benefit over the life of the annuity to the
4.33consumer so that a reasonable person would believe the purchase is unnecessary; and
4.34(iii) the consumer has had another annuity exchange or replacement and, in
4.35particular, an exchange or replacement within the preceding 60 months.
5.1 Subd. 2. Obtaining suitability information. Before the execution of a purchase,
5.2exchange, or replacement of an annuity resulting from a recommendation, an insurance
5.3producer, or an insurer where no producer is involved, shall make reasonable efforts to
5.4obtain the consumer's suitability information, and record this information on a form,
5.5inventory, or similar record. The producer, upon request, shall provide to the consumer or
5.6their legal representative a copy of the information used in the making of the suitability
5.7determination.
5.8 Subd. 3. Restriction on issuance of annuity. Except as permitted under subdivision
5.94, an insurer shall not issue an annuity recommended to a consumer unless there is a
5.10reasonable basis to believe the annuity is suitable based on the consumer's suitability
5.11information.
5.12 Subd. 4. Exception. (a) Except as provided under paragraph (b), an insurance
5.13producer, or an insurer, does not have any obligation to a consumer under subdivision 1
5.14or 3 related to an annuity transaction if:
5.15(1) a recommendation was made and was later found to have been prepared based on
5.16materially inaccurate information provided by the consumer; or
5.17(2) a consumer refuses to provide relevant suitability information and the annuity
5.18transaction is not recommended.
5.19(b) An insurer's issuance of an annuity subject to paragraph (a) shall be reasonable
5.20under all the circumstances actually known, or which after reasonable inquiry should be
5.21known to the insurer or the insurance producer, at the time the annuity is issued.
5.22 Subd. 5. Documentation. An insurance producer or, where no insurance producer
5.23is involved, the responsible insurer representative, shall at the time of sale:
5.24(1) make a record of any recommendation subject to subdivision 1;
5.25(2) obtain a consumer signed statement documenting a consumer's refusal to provide
5.26suitability information, if any; and
5.27(3) obtain a consumer signed statement acknowledging that an annuity transaction is
5.28not recommended if a consumer decides to enter into an annuity transaction that is not
5.29based on the insurance producer's or insurer's recommendation.
5.30 Subd. 6. Supervision system. (a) An insurer shall establish a supervision system
5.31that is reasonably designed to achieve the insurer's and its insurance producers' compliance
5.32with sections 72A.203 to 72A.2036, including, but not limited to, all of the following:
5.33(1) the insurer shall maintain reasonable procedures to inform its insurance
5.34producers of the requirements of sections 72A.203 to 72A.2036 and shall incorporate the
5.35requirements of sections 72A.203 to 72A.2036 into relevant insurance producer training
5.36programs and manuals;
6.1(2) the insurer shall establish standards for insurance producer product training
6.2and shall maintain reasonable procedures to require its insurance producers to comply
6.3with the requirements of section 72A.2033;
6.4(3) the insurer shall provide product-specific training and training materials which
6.5explain all material features of its annuity products to its insurance producers;
6.6(4) the insurer shall maintain procedures for review of each recommendation
6.7before issuance of an annuity that are designed to ensure that there is a reasonable basis
6.8to determine that a recommendation is suitable. The review procedures shall apply a
6.9screening system for the purpose of identifying selected transactions for additional review
6.10and may be accomplished electronically or through other reasonable means including, but
6.11not limited to, physical review. The electronic or other system shall be designed to require
6.12an elevated individual review for those transactions involving consumers 65 years of age
6.13or older on the basis of the review procedure's thresholds for liquidity, liquid net worth,
6.14income, and anticipated material changes in their financial situation and needs and the
6.15elevated review shall be conducted by a natural person or persons;
6.16(5) the insurer shall maintain reasonable procedures to detect recommendations
6.17that are not suitable. This may include, but is not limited to, confirmation of consumer
6.18suitability information, systematic customer surveys, interviews, confirmation letters,
6.19and programs of internal monitoring. Nothing in this clause prevents an insurer from
6.20complying with this clause by applying sampling procedures, or by confirming suitability
6.21information after issuance or delivery of the annuity; and
6.22(6) the insurer shall annually provide a report to senior management, including to the
6.23senior manager responsible for audit functions, which details a review, with appropriate
6.24testing, reasonably designed to determine the effectiveness of the supervision system, the
6.25exceptions found, and corrective action taken or recommended, if any.
6.26(b)(1) Nothing in this subdivision restricts an insurer from contracting for
6.27performance of a function, including maintenance of procedures, required under paragraph
6.28(a). An insurer is responsible for taking appropriate corrective action and may be subject
6.29to sanctions and penalties pursuant to section 72A.2034 regardless of whether the insurer
6.30contracts for performance of a function and regardless of the insurer's compliance with
6.31subdivision 2, and an insurer is responsible for the compliance of an insurance producer
6.32with the provisions of sections 72A.203 to 72A.2036 regardless of whether the insurer
6.33contracts for performance of a function required under this paragraph; and
6.34(2) an insurer's supervision system under paragraph (a) must include supervision
6.35of contractual performance under this clause. This includes, but is not limited to, the
6.36following:
7.1(i) monitoring and, as appropriate, conducting audits to assure that the contracted
7.2function is properly performed; and
7.3(ii) annually obtaining a certification from a senior manager who has responsibility
7.4for the contracted function that the manager has a reasonable basis to represent, and does
7.5represent, that the function is properly performed.
7.6(c) An insurer is not required to include in its system of supervision an insurance
7.7producer's recommendations to consumers of products other than the annuities offered
7.8by the insurer.
7.9 Subd. 7. Undue influence. An insurance producer or insurer shall not dissuade,
7.10or attempt to dissuade, a consumer from:
7.11(1) providing suitability information to the insurance producer or insurer and
7.12truthfully responding to an insurer's request for confirmation of suitability information;
7.13(2) filing a complaint; or
7.14(3) cooperating with the investigation of a complaint.
7.15 Subd. 8. FINRA compliance (a) Sales of annuities made by broker-dealers satisfy
7.16the requirements under sections 72A.203 to 72A.2036, so long as:
7.17(1) those sales comply with FINRA requirements pertaining to suitability and
7.18supervision of annuity transactions; and
7.19(2) a registered principal reviews and approves the transaction based on review
7.20criteria that include consideration of the customer's age, income, liquidity needs, and
7.21financial situation.
7.22(b) The insurer remains responsible for the suitability of every transaction and must
7.23take reasonably appropriate corrective action for any consumer harmed by violation of
7.24law and is subject to the penalty provisions described in section 72A.2034, subdivision 1.
7.25(c) For paragraph (a) to apply, an insurer shall:
7.26(1) monitor the FINRA member broker-dealer using information collected in the
7.27normal course of the insurer's business; and
7.28(2) provide to the FINRA member broker-dealer information and reports that
7.29are reasonably appropriate to assist the FINRA member broker-dealer to maintain its
7.30supervision system.
7.31(3) In addition, nothing in this subdivision limits the responsibilities of the insurer to
7.32monitor the broker-dealer as provided in this subdivision.
7.33(d) Nothing in this subdivision limits the commissioner of commerce's ability to
7.34enforce the provisions of sections 72A.203 to 72A.2036 with respect to sales made in
7.35compliance with FINRA requirements and federal law.
8.1 Sec. 4. [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 onetime four-credit training course
8.9approved by the commissioner and provided by a continuing education provider approved
8.10by 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, 2014.
8.14Individuals who obtain a life insurance line of authority on or after January 1, 2014, may
8.15not engage in the sale of annuities until the annuity training course required under this
8.16subdivision has been completed.
8.17(b) The length of the training required under this subdivision must be four continuing
8.18education hours.
8.19(c) The training required under this subdivision must include information on the
8.20following topics:
8.21(1) the types of annuities and various classifications of annuities;
8.22(2) identification of the parties to an annuity;
8.23(3) how fixed, variable, and indexed annuity contract provisions affect consumers;
8.24(4) the application of income taxation of qualified and nonqualified annuities;
8.25(5) the primary uses of annuities;
8.26(6) appropriate and lawful sales practices, replacement, and disclosure requirements,
8.27and suitability information and whether an annuity is suitable for a consumer; and
8.28(7) the recognition of indicators that a prospective insured may lack the short-term
8.29memory or judgment to knowingly purchase an insurance product.
8.30(d) Providers of courses intended to comply with this subdivision shall cover all
8.31topics listed in the prescribed outline and shall not present any marketing information or
8.32provide training on sales techniques or provide specific information about a particular
8.33insurer's products.
8.34(e) A provider of an annuity training course intended to comply with this subdivision
8.35must be an approved continuing education provider in this state and comply with the
8.36requirements applicable to insurance producer continuing education courses.
9.1(f) Annuity training courses may be conducted and completed by classroom or
9.2self-study methods in accordance with chapter 45. In order to assist compliance with this
9.3section, all courses approved by the commissioner for the purposes of this section shall be
9.4given the course title "Annuity Suitability and Disclosure." Only courses satisfying the
9.5requirements of this section shall use this course title after the effective date of this section.
9.6(g) Providers of annuity training shall comply with the course completion reporting
9.7requirements of chapter 45.
9.8(h) The satisfaction of the training requirements of another state that are substantially
9.9similar to the provisions of this subdivision satisfies the training requirements of this
9.10subdivision in this state, but does not satisfy any of the continuing education requirements
9.11of chapter 60K unless the training requirements of the other state are satisfied through one
9.12or more continuing education courses approved by the commissioner.
9.13(i) An insurer shall verify that an insurance producer has completed the annuity
9.14training course required under this subdivision before allowing the producer to sell an
9.15annuity product for that insurer. An insurer may satisfy its responsibility under this
9.16subdivision by obtaining certificates of completion of the training course or obtaining
9.17reports provided by commissioner-sponsored database systems, vendors, or from
9.18a reasonably reliable commercial database vendor that has a reporting arrangement
9.19with approved insurance education providers. If such data collection and reporting
9.20arrangements are not in place, an insurer must maintain records verifying that the producer
9.21has completed the annuity training course required under this subdivision and make the
9.22records available to the commissioner upon request.
9.23 Sec. 5. [72A.2034] PENALTIES.
9.24 Subdivision 1. Imposition. (a) An insurer is responsible for compliance with
9.25sections 72A.203 to 72A.2036. If a violation occurs, either because of the action or
9.26inaction of the insurer or its insurance producer, the commissioner may order, in addition
9.27to any available penalties, remedies, or administrative actions:
9.28(1) an insurer to take reasonably appropriate corrective action, including but not
9.29limited to canceling a transaction action for any consumer harmed by the insurer's, or by
9.30its insurance producer's, violation of sections 72A.203 to 72A.2036;
9.31(2) a general agency, independent agency, or the insurance producer to take
9.32reasonably appropriate corrective action for any consumer harmed by the insurance
9.33producer's violation of sections 72A.203 to 72A.2036; and
9.34(3) appropriate penalties and sanctions.
10.1(b) Nothing in sections 72A.203 to 72A.2036 shall affect any obligation of an
10.2insurer for the acts of its insurance producers, or any consumer remedy or any cause
10.3of action that is otherwise provided for under applicable federal or state law, including
10.4without limitation chapter 60K.
10.5 Subd. 2. Aggravation or mitigation. Any applicable penalty for a violation of
10.6sections 72A.203 to 72A.2036 may be increased or decreased upon consideration of any
10.7aggravating or mitigating circumstances.
10.8 Sec. 6. [72A.2035] RECORD KEEPING.
10.9 Subdivision 1. Duration. Insurers and insurance producers shall maintain or be able
10.10to make available to the commissioner records of the information collected from the
10.11consumer and other information used in making the recommendations that were the basis
10.12for insurance transactions for ten years after the insurance transaction is completed by the
10.13insurer. An insurer is permitted, but shall not be required, to maintain documentation on
10.14behalf of an insurance producer.
10.15 Subd. 2. Medium. Records required to be maintained by sections 72A.203 to
10.1672A.2036 may be maintained in paper, photographic, microprocess, magnetic, mechanical,
10.17or electronic media or by any process that accurately reproduces the actual document.
10.18 Sec. 7. [72A.2036] RELATIONSHIP TO OTHER LAWS; ENFORCEMENT.
10.19(a) Nothing in sections 72A.203 to 72A.2036 shall be interpreted to:
10.20(1) change, alter, or modify any of the obligations, duties, or responsibilities of
10.21insurers or insurance producers, pursuant to any orders of the commissioner or consent
10.22decrees in effect as of June 1, 2013; or
10.23(2) limit the commissioner's authority to make any investigation or take any action
10.24under chapter 45 or other applicable state law with respect to any insurer, insurance
10.25producer, broker-dealer, third-party contractor, or other entity engaged in any activity
10.26involving the sale of an annuity that is subject to sections 72A.203 to 72A.2036.
10.27(b) In addition to any other penalties provided by the laws of this state, a violation of
10.28sections 72A.203 to 72A.2036 shall be considered a violation of section 72A.20.
10.29 Sec. 8. EFFECTIVE DATE.
10.30This act is effective June 1, 2013.
1.3a model regulation adopted by the National Association of Insurance
1.4Commissioners relating to suitability in annuity transactions;proposing coding
1.5for new law in Minnesota Statutes, chapter 72A.
1.6BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.7 Section 1. [72A.203] EXEMPTIONS.
1.8Unless otherwise specifically included, sections 72A.203 to 72A.2036 do not apply
1.9to transactions involving:
1.10(1) direct response solicitations where there is no recommendation based on
1.11information collected from the consumer pursuant to sections 72A.203 to 72A.2036;
1.12(2) contracts used to fund group plans under:
1.13(i) an employee pension or welfare benefit plan that is covered by the Employee
1.14Retirement and Income Security Act of 1974 (ERISA), United States Code, title 29,
1.15sections 1001 to 1461;
1.16(ii) a plan described by section 401(a), 401(k), 403(b), 408(k), or 408(p) of the
1.17Internal Revenue Code of 1986; as amended, if established or maintained by an employer;
1.18(iii) a government or church plan defined in section 414 of the Internal Revenue
1.19Code of 1986 as amended, a government or church welfare benefit plan, or a deferred
1.20compensation plan of a state or local government or tax-exempt organization under section
1.21457 of the Internal Revenue Code of 1986, as amended; or
1.22(iv) a nonqualified deferred compensation arrangement established or maintained by
1.23an employer or plan sponsor; and
2.1(3) contracts used to fund, unless there is a recommendation to a consumer regarding
2.2an annuity in which case sections 72A.203 to 72A.2036 do apply with respect to the
2.3consumer annuity transaction:
2.4(i) settlements of or assumptions of liabilities associated with personal injury
2.5litigation or a dispute or claim resolution process; or
2.6(ii) formal prepaid funeral contracts.
2.7 Sec. 2. [72A.2031] DEFINITIONS.
2.8 Subdivision 1. Definitions. For purposes of sections 72A.203 to 72A.2036, the
2.9terms defined in this section have the meanings given them.
2.10 Subd. 2. Annuity. "Annuity" means an annuity that is an insurance product under
2.11state law that is individually solicited, whether the product is classified as an individual or
2.12group annuity.
2.13 Subd. 3. Broker-dealer. "Broker-dealer" means a person engaged in the business
2.14of effecting transactions in securities for the account of others or for the person's own
2.15account. The term does not include:
2.16(1) an agent;
2.17(2) an issuer;
2.18(3) a depository institution; provided such activities are conducted in accordance
2.19with such rules as may be adopted by the administrator;
2.20(4) an international banking institution; or
2.21(5) a person excluded by rule adopted or order issued under this chapter.
2.22 Subd. 4. Continuing education credit or CE credit. "Continuing education credit"
2.23or "CE credit" means one continuing education credit earned pursuant to section 45.30,
2.24subdivision 4.
2.25 Subd. 5. Continuing education provider or CE provider. "Continuing education
2.26provider" or "CE provider" means an approved education provider under chapter 45.
2.27 Subd. 6. FINRA. "FINRA" means the Financial Industry Regulatory Authority
2.28or a succeeding agency.
2.29 Subd. 7. Insurer. "Insurer" means a company required to be licensed under the laws
2.30of this state to provide insurance products, including annuities.
2.31 Subd. 8. Insurance producer. "Insurance producer" means a person required to
2.32be licensed under the laws of this state to sell, solicit, or negotiate insurance, including
2.33annuities.
2.34 Subd. 9. Registered principal. "Registered principal" means persons associated
2.35with a FINRA member broker-dealer, who are actively engaged in the management of
3.1the FINRA member broker-dealer investment banking or securities business, including
3.2supervision, solicitation, conduct of business, or the training of persons associated with a
3.3FINRA member broker-dealer for any of these functions.
3.4 Subd. 10. Replacement. "Replacement" means a transaction in which a new policy
3.5or contract is to be purchased, and it is known or should be known to the proposing producer,
3.6or the proposing insurer, whether or not there is an insurance producer, that by reason of
3.7the transaction, an existing policy or contract has been or is to be any of the following:
3.8(1) lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing
3.9insurer, or otherwise terminated;
3.10(2) converted to reduced paid-up insurance, continued as extended term insurance,
3.11or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;
3.12(3) amended so as to effect either a reduction in benefits or in the term for which
3.13coverage would otherwise remain in force or for which benefits would be paid;
3.14(4) reissued with any reduction in cash value; or
3.15(5) used in a financed purchase.
3.16 Subd. 11. Suitability information. "Suitability information" means information
3.17that is reasonably appropriate to determine the suitability of a recommendation, including
3.18but not limited to the following:
3.19(1) age;
3.20(2) annual income and anticipated material changes in annual income;
3.21(3) financial situation and needs, including the financial resources used for the funding
3.22of the annuity, and including anticipated material changes in financial situation and needs;
3.23(4) financial experience;
3.24(5) financial objectives;
3.25(6) intended use of the annuity;
3.26(7) financial time horizon;
3.27(8) existing assets, including investment and life insurance holdings and anticipated
3.28material changes in existing assets;
3.29(9) liquidity needs and anticipated material changes in liquidity needs;
3.30(10) liquid net worth and anticipated material changes in liquid net worth;
3.31(11) risk tolerance;
3.32(12) tax status; and
3.33(13) whether or not the consumer has a reverse mortgage.
3.34 Sec. 3. [72A.2032] DUTIES OF INSURERS AND INSURANCE PRODUCERS.
4.1 Subdivision 1. Suitability standard. In recommending under sections 72A.20,
4.2subdivision 34, and 60K.46, subdivision 4, to a consumer the purchase of an annuity or the
4.3exchange of an annuity that results in another insurance transaction or series of insurance
4.4transactions, the insurance producer, or the insurer where no producer is involved, shall
4.5have reasonable grounds for believing, after a reasonable inquiry, that the recommendation
4.6is suitable for the consumer, under the totality of the circumstances based on the facts
4.7disclosed by the consumer as to the consumer's investments and other insurance products
4.8and as to the consumer's financial situation and needs, including the consumer's suitability
4.9information, and that there is a reasonable basis to believe all of the following:
4.10(1) the consumer has been reasonably informed of various features of the annuity,
4.11such as the potential surrender period and surrender charge, potential tax penalty if the
4.12consumer sells, exchanges, surrenders, redeems, or annuitizes the annuity, mortality and
4.13expense fees, investment advisory fees, potential charges for and features of riders,
4.14limitations on interest returns, insurance and investment components, and market risk;
4.15(2) the consumer would receive a tangible net benefit from the transaction;
4.16(3) for the particular consumer based on the consumer's suitability information:
4.17(i) the particular annuity as a whole, the underlying subaccounts to which funds
4.18are allocated at the time of purchase or exchange of the annuity, and riders and similar
4.19product enhancements, if any, are suitable; and
4.20(ii) in the case of an exchange or replacement, the transaction as a whole is suitable
4.21taking into account, among other things, the age of the consumer; and
4.22(4) in the case of an exchange or replacement of an annuity, the exchange or
4.23replacement is suitable including taking into consideration all of the following:
4.24(i) the consumer will incur a surrender charge; be subject to the commencement of a
4.25new surrender period; lose existing benefits, such as death, living, or other contractual
4.26benefits; or be subject to increased fees, investment advisory fees, or charges for riders
4.27and similar product enhancements;
4.28(ii) the consumer would receive a tangible net benefit from the transaction, and
4.29in the case of a person 65 years of age or older, neither a producer nor an insurer shall
4.30recommend a replacement or exchange of an annuity that requires the insured to pay
4.31a surrender charge for the annuity being replaced or exchanged if the replacement or
4.32exchange does not confer a substantial financial benefit over the life of the annuity to the
4.33consumer so that a reasonable person would believe the purchase is unnecessary; and
4.34(iii) the consumer has had another annuity exchange or replacement and, in
4.35particular, an exchange or replacement within the preceding 60 months.
5.1 Subd. 2. Obtaining suitability information. Before the execution of a purchase,
5.2exchange, or replacement of an annuity resulting from a recommendation, an insurance
5.3producer, or an insurer where no producer is involved, shall make reasonable efforts to
5.4obtain the consumer's suitability information, and record this information on a form,
5.5inventory, or similar record. The producer, upon request, shall provide to the consumer or
5.6their legal representative a copy of the information used in the making of the suitability
5.7determination.
5.8 Subd. 3. Restriction on issuance of annuity. Except as permitted under subdivision
5.94, an insurer shall not issue an annuity recommended to a consumer unless there is a
5.10reasonable basis to believe the annuity is suitable based on the consumer's suitability
5.11information.
5.12 Subd. 4. Exception. (a) Except as provided under paragraph (b), an insurance
5.13producer, or an insurer, does not have any obligation to a consumer under subdivision 1
5.14or 3 related to an annuity transaction if:
5.15(1) a recommendation was made and was later found to have been prepared based on
5.16materially inaccurate information provided by the consumer; or
5.17(2) a consumer refuses to provide relevant suitability information and the annuity
5.18transaction is not recommended.
5.19(b) An insurer's issuance of an annuity subject to paragraph (a) shall be reasonable
5.20under all the circumstances actually known, or which after reasonable inquiry should be
5.21known to the insurer or the insurance producer, at the time the annuity is issued.
5.22 Subd. 5. Documentation. An insurance producer or, where no insurance producer
5.23is involved, the responsible insurer representative, shall at the time of sale:
5.24(1) make a record of any recommendation subject to subdivision 1;
5.25(2) obtain a consumer signed statement documenting a consumer's refusal to provide
5.26suitability information, if any; and
5.27(3) obtain a consumer signed statement acknowledging that an annuity transaction is
5.28not recommended if a consumer decides to enter into an annuity transaction that is not
5.29based on the insurance producer's or insurer's recommendation.
5.30 Subd. 6. Supervision system. (a) An insurer shall establish a supervision system
5.31that is reasonably designed to achieve the insurer's and its insurance producers' compliance
5.32with sections 72A.203 to 72A.2036, including, but not limited to, all of the following:
5.33(1) the insurer shall maintain reasonable procedures to inform its insurance
5.34producers of the requirements of sections 72A.203 to 72A.2036 and shall incorporate the
5.35requirements of sections 72A.203 to 72A.2036 into relevant insurance producer training
5.36programs and manuals;
6.1(2) the insurer shall establish standards for insurance producer product training
6.2and shall maintain reasonable procedures to require its insurance producers to comply
6.3with the requirements of section 72A.2033;
6.4(3) the insurer shall provide product-specific training and training materials which
6.5explain all material features of its annuity products to its insurance producers;
6.6(4) the insurer shall maintain procedures for review of each recommendation
6.7before issuance of an annuity that are designed to ensure that there is a reasonable basis
6.8to determine that a recommendation is suitable. The review procedures shall apply a
6.9screening system for the purpose of identifying selected transactions for additional review
6.10and may be accomplished electronically or through other reasonable means including, but
6.11not limited to, physical review. The electronic or other system shall be designed to require
6.12an elevated individual review for those transactions involving consumers 65 years of age
6.13or older on the basis of the review procedure's thresholds for liquidity, liquid net worth,
6.14income, and anticipated material changes in their financial situation and needs and the
6.15elevated review shall be conducted by a natural person or persons;
6.16(5) the insurer shall maintain reasonable procedures to detect recommendations
6.17that are not suitable. This may include, but is not limited to, confirmation of consumer
6.18suitability information, systematic customer surveys, interviews, confirmation letters,
6.19and programs of internal monitoring. Nothing in this clause prevents an insurer from
6.20complying with this clause by applying sampling procedures, or by confirming suitability
6.21information after issuance or delivery of the annuity; and
6.22(6) the insurer shall annually provide a report to senior management, including to the
6.23senior manager responsible for audit functions, which details a review, with appropriate
6.24testing, reasonably designed to determine the effectiveness of the supervision system, the
6.25exceptions found, and corrective action taken or recommended, if any.
6.26(b)(1) Nothing in this subdivision restricts an insurer from contracting for
6.27performance of a function, including maintenance of procedures, required under paragraph
6.28(a). An insurer is responsible for taking appropriate corrective action and may be subject
6.29to sanctions and penalties pursuant to section 72A.2034 regardless of whether the insurer
6.30contracts for performance of a function and regardless of the insurer's compliance with
6.31subdivision 2, and an insurer is responsible for the compliance of an insurance producer
6.32with the provisions of sections 72A.203 to 72A.2036 regardless of whether the insurer
6.33contracts for performance of a function required under this paragraph; and
6.34(2) an insurer's supervision system under paragraph (a) must include supervision
6.35of contractual performance under this clause. This includes, but is not limited to, the
6.36following:
7.1(i) monitoring and, as appropriate, conducting audits to assure that the contracted
7.2function is properly performed; and
7.3(ii) annually obtaining a certification from a senior manager who has responsibility
7.4for the contracted function that the manager has a reasonable basis to represent, and does
7.5represent, that the function is properly performed.
7.6(c) An insurer is not required to include in its system of supervision an insurance
7.7producer's recommendations to consumers of products other than the annuities offered
7.8by the insurer.
7.9 Subd. 7. Undue influence. An insurance producer or insurer shall not dissuade,
7.10or attempt to dissuade, a consumer from:
7.11(1) providing suitability information to the insurance producer or insurer and
7.12truthfully responding to an insurer's request for confirmation of suitability information;
7.13(2) filing a complaint; or
7.14(3) cooperating with the investigation of a complaint.
7.15 Subd. 8. FINRA compliance (a) Sales of annuities made by broker-dealers satisfy
7.16the requirements under sections 72A.203 to 72A.2036, so long as:
7.17(1) those sales comply with FINRA requirements pertaining to suitability and
7.18supervision of annuity transactions; and
7.19(2) a registered principal reviews and approves the transaction based on review
7.20criteria that include consideration of the customer's age, income, liquidity needs, and
7.21financial situation.
7.22(b) The insurer remains responsible for the suitability of every transaction and must
7.23take reasonably appropriate corrective action for any consumer harmed by violation of
7.24law and is subject to the penalty provisions described in section 72A.2034, subdivision 1.
7.25(c) For paragraph (a) to apply, an insurer shall:
7.26(1) monitor the FINRA member broker-dealer using information collected in the
7.27normal course of the insurer's business; and
7.28(2) provide to the FINRA member broker-dealer information and reports that
7.29are reasonably appropriate to assist the FINRA member broker-dealer to maintain its
7.30supervision system.
7.31(3) In addition, nothing in this subdivision limits the responsibilities of the insurer to
7.32monitor the broker-dealer as provided in this subdivision.
7.33(d) Nothing in this subdivision limits the commissioner of commerce's ability to
7.34enforce the provisions of sections 72A.203 to 72A.2036 with respect to sales made in
7.35compliance with FINRA requirements and federal law.
8.1 Sec. 4. [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 onetime four-credit training course
8.9approved by the commissioner and provided by a continuing education provider approved
8.10by 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, 2014.
8.14Individuals who obtain a life insurance line of authority on or after January 1, 2014, may
8.15not engage in the sale of annuities until the annuity training course required under this
8.16subdivision has been completed.
8.17(b) The length of the training required under this subdivision must be four continuing
8.18education hours.
8.19(c) The training required under this subdivision must include information on the
8.20following topics:
8.21(1) the types of annuities and various classifications of annuities;
8.22(2) identification of the parties to an annuity;
8.23(3) how fixed, variable, and indexed annuity contract provisions affect consumers;
8.24(4) the application of income taxation of qualified and nonqualified annuities;
8.25(5) the primary uses of annuities;
8.26(6) appropriate and lawful sales practices, replacement, and disclosure requirements,
8.27and suitability information and whether an annuity is suitable for a consumer; and
8.28(7) the recognition of indicators that a prospective insured may lack the short-term
8.29memory or judgment to knowingly purchase an insurance product.
8.30(d) Providers of courses intended to comply with this subdivision shall cover all
8.31topics listed in the prescribed outline and shall not present any marketing information or
8.32provide training on sales techniques or provide specific information about a particular
8.33insurer's products.
8.34(e) A provider of an annuity training course intended to comply with this subdivision
8.35must be an approved continuing education provider in this state and comply with the
8.36requirements applicable to insurance producer continuing education courses.
9.1(f) Annuity training courses may be conducted and completed by classroom or
9.2self-study methods in accordance with chapter 45. In order to assist compliance with this
9.3section, all courses approved by the commissioner for the purposes of this section shall be
9.4given the course title "Annuity Suitability and Disclosure." Only courses satisfying the
9.5requirements of this section shall use this course title after the effective date of this section.
9.6(g) Providers of annuity training shall comply with the course completion reporting
9.7requirements of chapter 45.
9.8(h) The satisfaction of the training requirements of another state that are substantially
9.9similar to the provisions of this subdivision satisfies the training requirements of this
9.10subdivision in this state, but does not satisfy any of the continuing education requirements
9.11of chapter 60K unless the training requirements of the other state are satisfied through one
9.12or more continuing education courses approved by the commissioner.
9.13(i) An insurer shall verify that an insurance producer has completed the annuity
9.14training course required under this subdivision before allowing the producer to sell an
9.15annuity product for that insurer. An insurer may satisfy its responsibility under this
9.16subdivision by obtaining certificates of completion of the training course or obtaining
9.17reports provided by commissioner-sponsored database systems, vendors, or from
9.18a reasonably reliable commercial database vendor that has a reporting arrangement
9.19with approved insurance education providers. If such data collection and reporting
9.20arrangements are not in place, an insurer must maintain records verifying that the producer
9.21has completed the annuity training course required under this subdivision and make the
9.22records available to the commissioner upon request.
9.23 Sec. 5. [72A.2034] PENALTIES.
9.24 Subdivision 1. Imposition. (a) An insurer is responsible for compliance with
9.25sections 72A.203 to 72A.2036. If a violation occurs, either because of the action or
9.26inaction of the insurer or its insurance producer, the commissioner may order, in addition
9.27to any available penalties, remedies, or administrative actions:
9.28(1) an insurer to take reasonably appropriate corrective action, including but not
9.29limited to canceling a transaction action for any consumer harmed by the insurer's, or by
9.30its insurance producer's, violation of sections 72A.203 to 72A.2036;
9.31(2) a general agency, independent agency, or the insurance producer to take
9.32reasonably appropriate corrective action for any consumer harmed by the insurance
9.33producer's violation of sections 72A.203 to 72A.2036; and
9.34(3) appropriate penalties and sanctions.
10.1(b) Nothing in sections 72A.203 to 72A.2036 shall affect any obligation of an
10.2insurer for the acts of its insurance producers, or any consumer remedy or any cause
10.3of action that is otherwise provided for under applicable federal or state law, including
10.4without limitation chapter 60K.
10.5 Subd. 2. Aggravation or mitigation. Any applicable penalty for a violation of
10.6sections 72A.203 to 72A.2036 may be increased or decreased upon consideration of any
10.7aggravating or mitigating circumstances.
10.8 Sec. 6. [72A.2035] RECORD KEEPING.
10.9 Subdivision 1. Duration. Insurers and insurance producers shall maintain or be able
10.10to make available to the commissioner records of the information collected from the
10.11consumer and other information used in making the recommendations that were the basis
10.12for insurance transactions for ten years after the insurance transaction is completed by the
10.13insurer. An insurer is permitted, but shall not be required, to maintain documentation on
10.14behalf of an insurance producer.
10.15 Subd. 2. Medium. Records required to be maintained by sections 72A.203 to
10.1672A.2036 may be maintained in paper, photographic, microprocess, magnetic, mechanical,
10.17or electronic media or by any process that accurately reproduces the actual document.
10.18 Sec. 7. [72A.2036] RELATIONSHIP TO OTHER LAWS; ENFORCEMENT.
10.19(a) Nothing in sections 72A.203 to 72A.2036 shall be interpreted to:
10.20(1) change, alter, or modify any of the obligations, duties, or responsibilities of
10.21insurers or insurance producers, pursuant to any orders of the commissioner or consent
10.22decrees in effect as of June 1, 2013; or
10.23(2) limit the commissioner's authority to make any investigation or take any action
10.24under chapter 45 or other applicable state law with respect to any insurer, insurance
10.25producer, broker-dealer, third-party contractor, or other entity engaged in any activity
10.26involving the sale of an annuity that is subject to sections 72A.203 to 72A.2036.
10.27(b) In addition to any other penalties provided by the laws of this state, a violation of
10.28sections 72A.203 to 72A.2036 shall be considered a violation of section 72A.20.
10.29 Sec. 8. EFFECTIVE DATE.
10.30This act is effective June 1, 2013.
