Bill Text: TX HB1777 | 2021-2022 | 87th Legislature | Enrolled
Bill Title: Relating to disclosures and standards required for certain annuity transactions and benefits under certain annuity contracts.
Spectrum: Partisan Bill (Republican 2-0)
Status: (Passed) 2021-06-04 - Effective on 9/1/21 [HB1777 Detail]
Download: Texas-2021-HB1777-Enrolled.html
H.B. No. 1777 |
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relating to disclosures and standards required for certain annuity | ||
transactions and benefits under certain annuity contracts. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Section 1107.055, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1107.055. INTEREST RATE. The interest rate used in | ||
determining minimum nonforfeiture amounts shall be an annual rate | ||
of interest determined as the lesser of three percent per annum and | ||
the following, which must be specified in the contract if the | ||
interest rate will be redetermined: | ||
(1) the five-year Constant Maturity Treasury Rate | ||
reported by the Federal Reserve as of a date, or average over a | ||
period, rounded to the nearest 1/20th of one percent, specified in | ||
the contract no longer than 15 months prior to the contract issue | ||
date or redetermination date under Subdivision (4); | ||
(2) reduced by 125 basis points; | ||
(3) where the resulting interest rate is not less than | ||
0.15 [ |
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(4) the interest rate shall apply for an initial | ||
period and may be redetermined for additional periods. The | ||
redetermination date, basis, and period, if any, shall be stated in | ||
the contract. As used in this section, basis is the date, or | ||
average over a specified period, which produces the five-year | ||
Constant Maturity Treasury Rate to be used at each redetermination | ||
date. | ||
SECTION 2. Section 1115.001, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.001. PURPOSE. The purpose of this chapter is to | ||
require an agent to act in the best interest of the consumer when | ||
making a recommendation of an [ |
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to establish and maintain a system to supervise those | ||
recommendations so [ |
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financial objectives of the consumer as of the time of the | ||
transaction are effectively [ |
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SECTION 3. Section 1115.002, Insurance Code, is amended by | ||
amending Subdivisions (2-a), (3), (4), and (5) and adding | ||
Subdivisions (2-b), (2-c), (3-a), (3-b), (3-c), and (3-d) to read | ||
as follows: | ||
(2-a) "Cash compensation" means a discount, | ||
concession, fee, service fee, commission, sales charge, loan, | ||
override, or cash benefit received by an agent from an insurer, | ||
intermediary, or consumer in connection with the recommendation or | ||
sale of an annuity. | ||
(2-b) "Consumer profile information" means | ||
information that is reasonably appropriate to determine whether a | ||
recommendation addresses the consumer's financial situation, | ||
insurance needs, and financial objectives, including the | ||
following: | ||
(A) age; | ||
(B) annual income; | ||
(C) existing assets and financial products, | ||
including investment, annuity, and insurance holdings; | ||
(D) financial situation and needs, including | ||
debts and other obligations; | ||
(E) financial experience; | ||
(F) financial objectives; | ||
(G) financial resources used to fund the annuity; | ||
(H) financial time horizon; | ||
(I) insurance needs; | ||
(J) intended use of the annuity; | ||
(K) liquid net worth; | ||
(L) liquidity needs; | ||
(M) risk tolerance, including willingness to | ||
accept non-guaranteed elements in the annuity; and | ||
(N) tax status. | ||
(2-c) "Continuing education provider" means a person | ||
authorized to offer continuing education courses under Chapter | ||
4004. | ||
(3) "Insurer" means a company authorized to engage in | ||
the business of life insurance and annuities in this state, and | ||
includes a fraternal benefit society operating under Chapter 885. | ||
(3-a) "Intermediary" means an entity contracted | ||
directly with an insurer or with another entity contracted with an | ||
insurer to facilitate the sale of the insurer's annuities by | ||
agents. | ||
(3-b) "Material conflict of interest" means a | ||
financial interest of an agent in the sale of an annuity that a | ||
reasonable person would expect to influence the impartiality of a | ||
recommendation. The term does not include cash or noncash | ||
compensation paid to an agent. | ||
(3-c) "Noncash compensation" means any form of | ||
compensation that is not cash compensation, including health | ||
insurance, office rent, office support, and retirement benefits. | ||
(3-d) "Non-guaranteed element" means a premium, | ||
credited interest rate, including any bonus, benefit, value, | ||
dividend, non-interest based credit, or charge, or an element of a | ||
formula used to determine any of those elements, that is determined | ||
at the discretion of the insurer and is not guaranteed at issue. The | ||
term includes an element that is calculated using an element that is | ||
determined at the discretion of the insurer and is not guaranteed at | ||
issue. | ||
(4) "Recommendation" means advice provided by an | ||
agent, or an insurer if no agent is involved, to an individual | ||
consumer that is intended to result or does result [ |
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purchase, exchange, or replacement of an annuity made in accordance | ||
with that advice. The term does not include a general communication | ||
to the public, any generalized customer service assistance or | ||
administrative support, any general educational information or | ||
tools, a prospectus, or any other product or sales material. | ||
(5) "Replacement" means a transaction in which a new | ||
annuity [ |
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agent, or the proposing insurer regardless of whether [ |
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is [ |
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transaction, an existing annuity or other insurance policy [ |
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(A) lapsed, forfeited, surrendered or partially | ||
surrendered, assigned to the replacing insurer, or otherwise | ||
terminated; | ||
(B) 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; | ||
(C) 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; | ||
(D) reissued with any reduction in cash value; or | ||
(E) used in a financed purchase. | ||
SECTION 4. Section 1115.003, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.003. APPLICABILITY; EXEMPTIONS. (a) This | ||
chapter applies to any sale of [ |
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[ |
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[ |
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(b) Unless otherwise specifically included, this chapter | ||
does not apply to transactions involving: | ||
(1) direct response solicitations if there is no | ||
recommendation based on information collected from the consumer | ||
under this chapter; [ |
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(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; or | ||
(D) a nonqualified deferred compensation | ||
arrangement established or maintained by an employer or plan | ||
sponsor; | ||
(3) [ |
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liabilities associated with personal injury litigation or any | ||
dispute or claim resolution process; or | ||
(4) [ |
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defined by Chapter 154, Finance Code. | ||
SECTION 5. Section 1115.004, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.004. NO CAUSE OF ACTION CREATED. This chapter may | ||
not be construed to create or imply a private cause of action | ||
against an agent or insurer or to subject an agent or insurer to | ||
civil liability for a violation of: | ||
(1) this chapter or a rule adopted under this chapter; | ||
or | ||
(2) a standard governing the conduct of a fiduciary or | ||
a fiduciary relationship. | ||
SECTION 6. Subchapter B, Chapter 1115, Insurance Code, is | ||
amended by adding Sections 1115.0505, 1115.0506, 1115.0507, and | ||
1115.0508 to read as follows: | ||
Sec. 1115.0505. AGENTS EXERCISING MATERIAL CONTROL. (a) | ||
This subchapter applies to each agent who: | ||
(1) exercises material control or influence in making | ||
a recommendation or sale; and | ||
(2) receives direct compensation as a result of the | ||
recommendation or sale, regardless of whether the agent has direct | ||
contact with the consumer. | ||
(b) Activities that do not constitute material control or | ||
influence include providing or delivering marketing or educational | ||
materials, product wholesaling or other back office product | ||
support, general supervision of an agent, and similar activities. | ||
Sec. 1115.0506. TRANSACTIONS NOT BASED ON RECOMMENDATION; | ||
CERTAIN EXEMPTIONS FROM SUBCHAPTER. An agent does not have an | ||
obligation to a consumer under Section 1115.0513 if: | ||
(1) the agent does not make a recommendation; | ||
(2) the agent makes a recommendation based on | ||
materially inaccurate information provided by the consumer; | ||
(3) the consumer refuses to provide consumer profile | ||
information; or | ||
(4) the consumer enters into an annuity transaction | ||
that is not based on the recommendation from the agent or the | ||
insurer. | ||
Sec. 1115.0507. INSURER OBLIGATIONS. (a) Notwithstanding | ||
Section 1115.0506, an insurer's issuance of an annuity must be | ||
reasonable under the circumstances known to the insurer at the time | ||
the annuity is issued. | ||
(b) If there is no agent involved in an annuity transaction, | ||
the obligations described in this subchapter apply to the insurer | ||
that recommends or sells the annuity in the same way those | ||
obligations would apply to an agent. | ||
Sec. 1115.0508. ADDITIONAL LICENSURE NOT REQUIRED. Nothing | ||
in this subchapter may be construed to require an agent to obtain a | ||
license other than the license described by Chapter 4054. | ||
SECTION 7. The heading to Section 1115.051, Insurance Code, | ||
is amended to read as follows: | ||
Sec. 1115.051. BEST-INTEREST OBLIGATION [ |
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SECTION 8. Sections 1115.051(a) and (b), Insurance Code, | ||
are amended to read as follows: | ||
(a) When making a recommendation of an annuity, an agent | ||
shall act in the best interest of the consumer under the | ||
circumstances known to the agent at the time the recommendation is | ||
made, without placing the agent's or the insurer's financial | ||
interest ahead of the consumer's interest [ |
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[ |
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(b) An agent is presumed to act in the best interest of the | ||
consumer if the agent satisfies the care, disclosure, conflict of | ||
interest, and documentation obligations described by this | ||
subchapter [ |
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SECTION 9. Subchapter B, Chapter 1115, Insurance Code, is | ||
amended by adding Sections 1115.0513, 1115.0514, 1115.0515, and | ||
1115.0516 to read as follows: | ||
Sec. 1115.0513. CARE OBLIGATION. (a) In making a | ||
recommendation, an agent shall exercise reasonable diligence, | ||
care, and skill to: | ||
(1) obtain consumer profile information from the | ||
consumer before making the recommendation of an annuity; | ||
(2) know the consumer's financial situation, insurance | ||
needs, and financial objectives; | ||
(3) understand the available recommendation options | ||
available to the agent; | ||
(4) consider the types of products the agent is | ||
authorized and licensed to recommend or sell that address the | ||
consumer's financial situation, insurance needs, and financial | ||
objectives; | ||
(5) have a reasonable basis to believe the | ||
recommendation addresses the consumer's financial situation, | ||
insurance needs, and financial objectives over the life of the | ||
product, in light of the consumer profile information; | ||
(6) have a reasonable basis to believe the consumer | ||
would benefit from certain features of the annuity, such as | ||
annuitization, a death or living benefit, or other | ||
insurance-related feature; and | ||
(7) communicate the basis of the recommendation. | ||
(b) Subsection (a) does not require: | ||
(1) analysis or consideration of a product outside the | ||
authority and license of the agent; | ||
(2) analysis or consideration of a product or strategy | ||
that is an alternative to an annuity; | ||
(3) recommendation of the annuity with the lowest | ||
one-time or multiple occurrence compensation structure; or | ||
(4) ongoing monitoring of the consumer's financial | ||
situation. | ||
(c) The agent shall consider consumer profile information, | ||
characteristics of the insurer, and product costs, rates, benefits, | ||
and features in determining whether an annuity effectively | ||
addresses the consumer's financial situation, insurance needs, and | ||
financial objectives. The agent may place varying levels of | ||
importance on each of those factors based on the facts and | ||
circumstances of a particular case, but may not consider one factor | ||
in isolation. | ||
(d) In the case of an exchange or replacement of an annuity, | ||
the agent shall consider the whole transaction, including whether: | ||
(1) the consumer will incur a surrender charge, be | ||
subjected 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; | ||
(2) the replacing product would substantially benefit | ||
the consumer in comparison to the replaced product over the life of | ||
the product; and | ||
(3) the consumer has had an annuity exchange or | ||
replacement in the preceding 60 months. | ||
(e) This section applies to an annuity as a whole, | ||
including: | ||
(1) underlying subaccounts to which money is allocated | ||
at the time of the purchase or exchange of an annuity; and | ||
(2) any riders and similar product enhancements. | ||
(f) An agent shall be held to standards applicable to an | ||
agent with similar authority and licensure with respect to the | ||
requirements of this section. This section does not create a | ||
fiduciary obligation or relationship and only creates a regulatory | ||
obligation. This section does not affect any ongoing monitoring | ||
obligation an agent may have under a fiduciary, consulting, | ||
investment advising, or financial planning agreement between the | ||
consumer and the agent. | ||
Sec. 1115.0514. DISCLOSURE OBLIGATION. (a) Before the | ||
recommendation or sale of an annuity, an agent shall provide a | ||
disclosure to the consumer on a form prescribed by the commissioner | ||
by rule. | ||
(b) The prescribed form must be substantially similar to the | ||
National Association of Insurance Commissioners Insurance Agent | ||
Disclosure for Annuities form. The form must include: | ||
(1) a description of the scope and terms of the agent's | ||
relationship with the consumer and role in the transaction; | ||
(2) an affirmative statement on whether the agent is | ||
licensed and authorized to sell: | ||
(A) fixed annuities; | ||
(B) fixed indexed annuities; | ||
(C) variable annuities; | ||
(D) life insurance; | ||
(E) mutual funds; | ||
(F) stocks and bonds; or | ||
(G) certificates of deposit; | ||
(3) a statement describing the insurers for whom the | ||
agent is authorized, contracted or appointed, or otherwise able to | ||
sell insurance products, described as follows: | ||
(A) one insurer; | ||
(B) two or more insurers; or | ||
(C) two or more insurers though primarily | ||
contracted with one insurer; | ||
(4) a description of the sources and types of cash | ||
compensation and noncash compensation to be received by the agent, | ||
including whether the agent is to be compensated for the sale of a | ||
recommended annuity by commission as part of premium or other | ||
remuneration received from the insurer, intermediary, or other | ||
agent or by fee as a result of a contract for advice or consulting | ||
services; and | ||
(5) a notice of the consumer's right to request | ||
additional information regarding cash compensation under | ||
Subsection (c). | ||
(c) On request of the consumer or the consumer's designated | ||
representative, an agent shall disclose: | ||
(1) a reasonable estimate of the amount of cash | ||
compensation to be received by the agent, which may be stated as a | ||
range of amounts or percentages; and | ||
(2) whether the cash compensation is a one-time or | ||
multiple occurrence amount, and if a multiple occurrence amount, | ||
the frequency and amount of occurrence, which may be stated as a | ||
range of amounts or percentages. | ||
(d) Prior to or at the time of the recommendation or sale of | ||
an annuity, the agent must have a reasonable basis to believe the | ||
consumer has been informed of the features of the annuity, | ||
including: | ||
(1) the potential surrender period and surrender | ||
charge; | ||
(2) the potential tax penalty if the consumer sells | ||
exchanges, surrenders, or annuitizes the annuity; | ||
(3) mortality and expense fees; | ||
(4) investment advisory fees; | ||
(5) annual fees; | ||
(6) potential charges for and features of riders or | ||
other options of the annuity; | ||
(7) limitations on interest returns; | ||
(8) potential changes in non-guaranteed elements of | ||
the annuity; | ||
(9) insurance and investment components; and | ||
(10) market risk. | ||
Sec. 1115.0515. CONFLICT OF INTEREST OBLIGATION. (a) An | ||
agent shall take reasonable steps to discover a material conflict | ||
of interest, including a material conflict of interest related to | ||
an ownership interest. | ||
(b) An agent shall: | ||
(1) identify and avoid a material conflict of | ||
interest; or | ||
(2) reasonably manage and disclose the conflict. | ||
Sec. 1115.0516. DOCUMENTATION OBLIGATION. At the time of | ||
the recommendation or sale, an agent shall: | ||
(1) make a written record of the recommendation and | ||
the basis for the recommendation; | ||
(2) if applicable, obtain a statement signed by the | ||
consumer on a form prescribed by the commissioner by rule that is | ||
substantially similar to the National Association of Insurance | ||
Commissioners Consumer Refusal to Provide Information form | ||
documenting: | ||
(A) a consumer's refusal to provide consumer | ||
profile information; and | ||
(B) a consumer's understanding of the | ||
ramifications of failing to provide consumer profile information or | ||
providing insufficient consumer profile information; and | ||
(3) if a consumer decides to enter into an annuity | ||
transaction that is not based on the agent's recommendation, obtain | ||
a statement signed by the consumer on a form prescribed by the | ||
commissioner by rule that is substantially similar to the National | ||
Association of Insurance Commissioners Consumer Decision to | ||
Purchase an Annuity Not Based on a Recommendation, acknowledging | ||
that the annuity transaction is not recommended. | ||
SECTION 10. Section 1115.052, Insurance Code, is amended by | ||
amending Subsections (a), (b), (c), and (d) and adding Subsections | ||
(b-1) and (c-1) to read as follows: | ||
(a) Except as provided in Section 1115.0506, an insurer may | ||
not issue an annuity recommended to a consumer unless there is a | ||
reasonable basis to believe the annuity would effectively address | ||
the consumer's financial situation, insurance needs, and financial | ||
objectives based on the consumer's consumer profile information | ||
[ |
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(b) Each [ |
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achieve the insurer's and the insurer's agent's compliance with this | ||
chapter, including [ |
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(1) establishing and maintaining [ |
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reasonable procedures to inform the insurer's agents of the | ||
requirements of this chapter and incorporating [ |
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requirements of this chapter into relevant agent training manuals; | ||
(2) establishing and maintaining [ |
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standards for agent product training and establishing and | ||
maintaining [ |
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insurer's agents to comply with the requirements of Section | ||
1115.056; | ||
(3) providing [ |
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and training materials that explain all material features of the | ||
insurer's annuity products to the insurer's agents; | ||
(4) establishing and maintaining [ |
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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 the recommended annuity would | ||
effectively address the consumer's financial situation, insurance | ||
needs, and financial objectives [ |
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(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) establishing and maintaining [ |
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reasonable procedures, such as confirmation of consumer profile | ||
[ |
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consumer interviews, confirmation letters, agent statements or | ||
attestations, and programs of internal monitoring, to detect | ||
recommendations that are not in compliance with Sections 1115.0505 | ||
through 1115.051 and Sections 1115.0521 and 1115.054 [ |
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which may include [ |
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confirming consumer profile [ |
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issuance or delivery of the annuity; [ |
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(6) establishing and maintaining reasonable | ||
procedures to assess, before or on issuance or delivery of an | ||
annuity, whether an agent has provided to the consumer the | ||
information required to be provided under this subchapter; | ||
(7) establishing and maintaining reasonable | ||
procedures to identify and address suspicious consumer refusals to | ||
provide consumer profile information; | ||
(8) establishing and maintaining reasonable | ||
procedures to identify and eliminate sales contests, sales quotas, | ||
bonuses, or noncash compensation that are based on the sale of | ||
specific annuities within a limited period of time; and | ||
(9) annually providing [ |
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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. | ||
(b-1) Subsection (b)(8) does not prohibit the receipt by | ||
employees of health insurance, office rent, office support, | ||
retirement benefits, or other employee benefits so long as those | ||
benefits are not based on the volume of sales of a specific annuity | ||
within a limited period of time. | ||
(c) This subsection and Subsection (c-1) do [ |
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prohibit an insurer from contracting for the performance of a | ||
function, including maintenance of procedures, required by | ||
Subsection (b). 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 whether the insurer | ||
complies with Subsection (c-1). | ||
(c-1) An insurer's supervision system under Subsection (b) | ||
must include the supervision of contractual performance under this | ||
subsection that includes, at a minimum: | ||
(1) annually obtaining certification that complies | ||
with Section 1115.053 from a senior manager who represents that the | ||
contracted function is properly performed; and | ||
(2) monitoring and, as appropriate, conducting audits | ||
to ensure that the contracted function is properly performed. | ||
(d) An insurer is not required by this section to include in | ||
the supervision system: | ||
(1) an agent's recommendations to consumers of | ||
products other than the annuities offered by the insurer; or | ||
(2) consideration of or comparison to options | ||
available to the agent or compensation relating to those options | ||
other than annuities or other products offered by the insurer. | ||
SECTION 11. Subchapter B, Chapter 1115, Insurance Code, is | ||
amended by adding Section 1115.0521 to read as follows: | ||
Sec. 1115.0521. PROHIBITED PRACTICES. An agent or insurer | ||
may not dissuade or attempt to dissuade a consumer from: | ||
(1) truthfully responding to an insurer's request for | ||
confirmation of consumer profile information; | ||
(2) filing a complaint; or | ||
(3) cooperating with the investigation of a complaint. | ||
SECTION 12. Section 1115.053, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.053. CERTIFICATION REQUIREMENTS. A person may | ||
not provide a certification under Section 1115.052(c-1)(1) | ||
[ |
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(1) is a senior manager with responsibility for the | ||
delegated functions; and | ||
(2) has a reasonable basis for making the | ||
certification. | ||
SECTION 13. Section 1115.054, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 1115.054. SAFE HARBOR [ |
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comparable standards [ |
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requirements of this chapter. This section applies to | ||
recommendations and [ |
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[ |
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professional in compliance with business rules, controls, and | ||
procedures that satisfy a comparable standard even if such standard | ||
would not otherwise apply to the product or recommendation at issue | ||
[ |
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(b) This section does not affect or limit the commissioner's | ||
ability to enforce or investigate under this chapter. | ||
(c) This section does not limit the insurer's obligation to | ||
comply with Section 1115.052(a), although the insurer may base its | ||
analysis on information received from either the financial | ||
professional or the entity supervising the financial professional. | ||
(d) Subsection (a) applies only if the insurer: | ||
(1) using information collected in the normal course | ||
of the insurer's business, monitors the relevant conduct of the | ||
financial professional or the entity responsible for supervising | ||
the financial professional, such as the financial professional's | ||
[ |
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under federal or state securities laws [ |
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(2) provides to the entity responsible for supervising | ||
the financial professional, such as the financial professional's | ||
[ |
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under federal or state securities laws, information and reports | ||
that are reasonably appropriate to assist the entity in maintaining | ||
[ |
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supervision system. | ||
(e) For purposes of this section, "financial professional" | ||
means an agent that is regulated and acting as: | ||
(1) a broker-dealer registered under federal or state | ||
securities laws or a registered representative of a broker-dealer; | ||
(2) an investment adviser registered under federal or | ||
state securities laws or an investment adviser representative | ||
associated with the federal or state registered investment adviser; | ||
or | ||
(3) a plan fiduciary under Section 3(21), Employee | ||
Retirement Income Security Act of 1974 (29 U.S.C. Section 1002(21)) | ||
or a fiduciary under Section 4975(e)(3), Internal Revenue Code of | ||
1986. | ||
(f) For purposes of this section, "comparable standards" | ||
means: | ||
(1) with respect to a broker-dealer or a registered | ||
representative of a broker-dealer, applicable rules of the | ||
Financial Industry Regulatory Authority (FINRA) or a successor | ||
agency and the United States Securities and Exchange Commission | ||
pertaining to best interest obligations and supervision of annuity | ||
recommendations and sales, including Regulation Best Interest (17 | ||
C.F.R. Section 240.15l-1), including subsequent amendments or | ||
successor regulations; | ||
(2) with respect to an investment adviser registered | ||
under federal or state securities laws or an investment adviser | ||
representative, the fiduciary duties and all other requirements | ||
imposed on those investment advisers or investment adviser | ||
representatives by contract or under the Investment Advisers Act of | ||
1940 (15 U.S.C. Section 80b-1 et seq.) or applicable state | ||
securities law or regulations, including Form ADV (17 C.F.R. | ||
Section 279.1), and interpretations; and | ||
(3) with respect to a plan fiduciary or a fiduciary, | ||
the duties, obligations, prohibitions, and all other requirements | ||
attendant to that status under the Employee Retirement Income | ||
Security Act of 1974 (29 U.S.C. Section 1001 et seq.) or the | ||
Internal Revenue Code of 1986. | ||
SECTION 14. Section 1115.055(a), Insurance Code, is amended | ||
to read as follows: | ||
(a) Each agent, general 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, disclosures made to the consumer, including summaries of | ||
oral disclosures, and other information used in making a | ||
recommendation that was the basis for an insurance [ |
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subject to this chapter until the fifth anniversary of the date on | ||
which the transaction is completed by the insurer. | ||
SECTION 15. Section 1115.056, Insurance Code, is amended by | ||
amending Subsections (a), (b), (d), and (f) and adding Subsection | ||
(i-1) to read as follows: | ||
(a) An agent may not solicit the sale of an annuity product | ||
unless the agent has adequate knowledge of the product to recommend | ||
the annuity and the agent is in compliance with the insurer's | ||
standards for product training. An agent may rely on | ||
insurer-provided, product-specific training standards and | ||
materials to comply with this subsection. | ||
(b) An agent who engages in the sale of annuity products | ||
must complete a one-time four-credit training course approved by | ||
the department and provided by a continuing education provider. | ||
(d) The training required by Subsection (b) must include | ||
information on the following topics: | ||
(1) the types of annuities and various classifications | ||
of annuities; | ||
(2) identification of the parties to an annuity; | ||
(3) how product-specific [ |
||
(4) the application of income taxation of qualified | ||
and nonqualified annuities; | ||
(5) the primary uses of annuities; and | ||
(6) appropriate standard of conduct sales practices, | ||
replacement, and disclosure requirements. | ||
(f) A provider of an annuity training [ |
||
comply with Subsection (b) must register as a continuing education | ||
provider in this state and comply with the rules and guidelines | ||
applicable to agent continuing education courses provided by | ||
Chapter 4004. | ||
(i-1) A course that is substantially similar to a course | ||
required by this section satisfies the requirement. | ||
SECTION 16. The heading to Subchapter C, Chapter 1115, | ||
Insurance Code, is amended to read as follows: | ||
SUBCHAPTER C. MITIGATION; ENFORCEMENT | ||
SECTION 17. 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 | ||
commissioner may: | ||
(1) order: | ||
(A) the insurer to take reasonable appropriate | ||
corrective action for any consumer harmed by a failure to comply | ||
with this chapter by the insurer, [ |
||
entity contracted to perform the insurer's supervisory duties | ||
[ |
||
(B) a general agency, independent agency, or the | ||
agent to take reasonably appropriate corrective action for any | ||
consumer harmed by the agent's violation of this chapter; and | ||
(2) impose appropriate sanctions as provided by | ||
Section 1115.102. | ||
SECTION 18. The following sections of the Insurance Code | ||
are repealed: | ||
(1) Section 1115.002(6); | ||
(2) Sections 1115.051(c), (d), (e), and (f); and | ||
(3) Section 1115.052(e). | ||
SECTION 19. (a) Not later than December 1, 2021, the Texas | ||
Department of Insurance shall approve a training course for | ||
purposes of Section 1115.056, Insurance Code, as amended by this | ||
Act. | ||
(b) Section 1115.056, Insurance Code, as amended by this | ||
Act, applies only to the sale of an annuity on or after January 1, | ||
2022. The sale of an annuity before that date is governed by the law | ||
as it existed immediately before the effective date of this Act, and | ||
that law is continued in effect for that purpose. | ||
(c) An agent who has completed an annuity training course | ||
for purposes of Section 1115.056, Insurance Code, before January 1, | ||
2022, may comply with Section 1115.056, Insurance Code, as amended | ||
by this Act, by completing either: | ||
(1) a new four-credit training course approved by the | ||
Texas Department of Insurance under Subsection (a) of this section; | ||
or | ||
(2) an additional one-time one-credit training course | ||
approved by the Texas Department of Insurance and provided by a | ||
continuing education provider approved by the Texas Department of | ||
Insurance on appropriate sales practices, replacement, and | ||
disclosure requirements. | ||
SECTION 20. (a) Section 1107.055, Insurance Code, as | ||
amended by this Act, applies only to an annuity contract delivered, | ||
issued for delivery, or renewed on or after January 1, 2022. An | ||
annuity contract delivered, issued for delivery, or renewed before | ||
January 1, 2022, is governed by the law as it existed immediately | ||
before the effective date of this Act, and that law is continued in | ||
effect for that purpose. | ||
(b) Chapter 1115, Insurance Code, as amended by this Act, | ||
applies only to an annuity transaction that occurs on or after the | ||
effective date of this Act. An annuity transaction that occurs | ||
before the effective date of this Act is governed by the law as it | ||
existed immediately before the effective date of this Act, and that | ||
law is continued in effect for that purpose. | ||
SECTION 21. This Act takes effect September 1, 2021. | ||
______________________________ | ______________________________ | |
President of the Senate | Speaker of the House | |
I certify that H.B. No. 1777 was passed by the House on April | ||
29, 2021, by the following vote: Yeas 144, Nays 1, 1 present, not | ||
voting. | ||
______________________________ | ||
Chief Clerk of the House | ||
I certify that H.B. No. 1777 was passed by the Senate on May | ||
19, 2021, by the following vote: Yeas 31, Nays 0. | ||
______________________________ | ||
Secretary of the Senate | ||
APPROVED: _____________________ | ||
Date | ||
_____________________ | ||
Governor |