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House Engrossed |
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State of Arizona House of Representatives Forty-seventh Legislature Second Regular Session 2006
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HOUSE BILL 2162 |
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AN ACT
amending title 20, Chapter 6, Arizona Revised Statutes, by adding article 1.3; relating to protection in insurance annuity transactions.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Title 20, chapter 6, Arizona Revised Statutes, is amended by adding article 1.3, to read:
ARTICLE 1.3. PROTECTION IN ANNUITY TRANSACTIONS
20-1243. Definitions
in this ARTICLE, unless the context otherwise requires:
1. "Annuity" means a fixed or variable annuity that is individually solicited, whether the product is classified as an individual or group annuity.
2. "Business entity" has the same meaning prescribed in section 20‑281.
3. "Insurance producer" has the same meaning prescribed in section 20‑281.
4. "Insurer" has the same meaning prescribed in section 20-104.
5. "Managing general agent" has the same meaning prescribed in section 20-311.
6. "Recommendation" means advice provided by an insurance producer, or an insurer if no producer is involved, to an individual consumer that results in a purchase or exchange of an annuity pursuant to that advice.
20-1243.01. Scope and limitation of article
A. This article applies to any recommendation to purchase or exchange an annuity that is made to a consumer by an insurance producer, or an insurer if no producer is involved, that results in the recommended purchase or exchange.
B. Nothing in this article shall be construed to affect in any manner any provision of title 44, chapters 12 and 13.
20-1243.02. Exemptions
Unless otherwise specifically included, this article does not apply to recommendations involving:
1. Direct response solicitations if there is no recommendation based on information collected from the consumer pursuant to this article.
2. Contracts used to fund any of the following:
(a) An employee pension or welfare benefit plan that is covered by the employee retirement and income security act of 1974 (P.L. 93-406; 88 Stat. 829; 29 United States Code sections 1001 through 1461).
(b) A plan described by section 401(a), 401(k), 403(b), 408(k) or 408(p) of the internal revenue code, if established or maintained by an employer.
(c) A government or church plan as defined in section 414 of the internal revenue code, a government or church welfare benefit plan or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the internal revenue code.
(d) A nonqualified deferred compensation arrangement established or maintained by an employee or plan sponsor.
(e) Settlements of, or assumptions of liabilities associated with, personal injury litigation or any dispute or claim resolution process.
(f) Formal prepaid funeral contracts.
20-1243.03. Duties of insurers and insurance producers
A. In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or a series of insurance transactions, the insurance producer, or the insurer 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 the consumer’s investments and other insurance products and as to the consumer’s financial situation and needs.
B. Before the execution of a purchase or exchange of an annuity resulting from a recommendation, an insurance producer, or an insurer if no producer is involved, shall make reasonable efforts to obtain information concerning:
1. The consumer’s financial status.
2. The consumer’s tax status.
3. The consumer’s investment objectives.
4. Other information considered to be reasonable by the insurance producer, or the insurer if no producer is involved, in making a recommendation to the consumer.
C. Except as provided under subsection D, an insurance producer, or the insurer if no producer is involved, does not have any obligation to a consumer under subsection A related to any recommendation if a consumer either:
1. Refuses to provide relevant information that is requested by the insurer or insurance producer.
2. Decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance producer.
3. Fails to provide complete or accurate information.
D. An insurer's or insurance producer’s recommendation shall be reasonable under all of the circumstances actually known to the insurer or insurance producer at the time of the recommendation.
20-1243.04. Standards for supervision
A. An insurer shall either assure that a system to supervise recommendations that is reasonably designed to achieve compliance with this article is established and maintained by complying with subsections C, D and E, or establish and maintain such a system. Such a system includes:
1. Maintaining written procedures.
2. Conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this article.
B. A managing general agent and business entity shall either adopt a system established by an insurer to supervise recommendations of its insurance producers that is reasonably designed to achieve compliance with this article or establish and maintain such a system. Such a system includes:
1. Maintaining written procedures.
2. Conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this article.
C. An insurer may contract with a third party, including a managing general agent or business entity, to establish and maintain a system of supervision as required by subsection A with respect to insurance producers under contract with or employed by the third party.
D. An insurer shall make reasonable inquiry to assure that the third party contracting under subsection C is performing the functions required under subsection A and shall take such action as is reasonable under the circumstances to enforce the contractual obligation to perform the functions. An insurer may comply with the obligation to make reasonable inquiry by doing both of the following:
1. Annually obtaining a certification from a third party senior manager who has responsibility for the delegated functions that the manager has a reasonable basis to represent, and does represent, that the third party is performing the required functions.
2. Based on reasonable selection criteria, periodically select third parties contracting under subsection C for a review to determine if the third parties are performing the required functions. The insurer shall perform those procedures to conduct the review that are reasonable under the circumstances.
E. An insurer that contracts with a third party pursuant to subsection C and that complies with the requirements to supervise in subsection D fulfills its responsibilities under subsection A.
F. An insurer, managing general agent or business entity is not required pursuant to subsection A or B to:
1. Review, or provide for review of, all insurance producer solicited transactions.
2. Include in its system of supervision an insurance producer’s recommendations to consumers of products other than the annuities offered by the insurer, managing general agent or business entity.
G. A managing general agent or business entity contracting with an insurer pursuant to subsection C shall promptly, if requested by the insurer pursuant to subsection D, give a certification as described in subsection D or give a clear statement that it is unable to meet the certification criteria.
H. A person shall not provide a certification under subsection D, paragraph 1 unless both of the following apply:
1. The person is a senior manager with responsibility for the delegated functions.
2. The person has a reasonable basis for making the certification.
I. Compliance with the national association of securities dealers conduct rules pertaining to suitability satisfies the requirements under this section for the recommendation of variable annuities. However, this subsection does not limit the director’s ability to enforce this article.
20-1243.05. Mitigation of responsibility; director orders
A. The director may order:
1. An insurer to take reasonably appropriate corrective action for any consumer who is harmed by the insurer’s or by the insurer's insurance producer’s violation of this article.
2. An insurance producer to take reasonably appropriate corrective action for any consumer who is harmed by an insurance producer’s violation of this article.
3. A managing general agent or business entity that employs or contracts with an insurance producer to sell, or solicit the sale of, annuities to consumers to take reasonably appropriate corrective action for any consumer who is harmed by the insurance producer’s violation of this article.
B. The director may reduce or eliminate any applicable penalty under sections 20-220, 20-295 and 20-456 for a violation of section 20-1243.03, subsection A, B or D if corrective action for the consumer was taken promptly after a violation was discovered.
20-1243.06. Record keeping
A. Insurers, managing general agents, business entities and insurance producers shall maintain, or be able to make available to the director, records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for at least five years or until the next regular examination by the insurance regulatory authority of its state of domicile, whichever is later, after the insurance transaction is completed by the insurer. An insurer may maintain documentation on behalf of an insurance producer.
B. Records required to be maintained by this article may be maintained in paper, photographic, microprocess, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.