CHAPTER 1115. SUITABILITY OF CERTAIN ANNUITY TRANSACTIONS - Texas Statutes

INSURANCE CODE

TITLE 7. LIFE INSURANCE AND ANNUITIES

SUBTITLE A. LIFE INSURANCE IN GENERAL

CHAPTER 1115. SUITABILITY OF CERTAIN ANNUITY TRANSACTIONS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 1115.001. PURPOSE. The purpose of this chapter is to

establish standards and procedures regarding recommendations made

to a consumer that result in a transaction involving annuity

products to ensure that the insurance needs and financial

objectives of the consumer as of the time of the transaction are

appropriately addressed.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.002. DEFINITIONS. In this chapter:

(1) "Agent" means an individual who holds a license under

Chapter 4054 and who sells, solicits, or negotiates insurance or

annuity contracts in this state.

(2) "Annuity" means a fixed, variable, or modified guaranteed

annuity that is individually solicited, whether classified as an

individual annuity or group annuity.

(3) "Insurer" means an insurance company authorized to engage in

the business of life insurance and annuities in this state.

(4) "Recommendation" means advice provided by an agent or

insurer to an individual consumer that results in a purchase or

exchange of an annuity made in accordance with that advice.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.003. APPLICABILITY; EXEMPTIONS. (a) This chapter

applies to any recommendation to purchase or exchange an annuity

that:

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

(2) results in the recommended purchase or exchange.

(b) Unless otherwise specifically included, this chapter does

not apply to recommendations involving:

(1) direct response solicitations if there is no recommendation

based on information collected from the consumer under this

chapter; or

(2) contracts used to fund:

(A) an employee pension benefit plan or employee welfare benefit

plan covered by the Employee Retirement Income Security Act of

1974 (29 U.S.C. Section 1001 et seq.);

(B) a plan described by Section 401(a), 401(k), 403(b), 408(k),

or 408(p), Internal Revenue Code of 1986, if established or

maintained by an employer;

(C) a government or church plan, as defined by Section 414,

Internal Revenue Code of 1986, a government or church welfare

benefit plan, or a deferred compensation plan of a state or local

government or tax exempt organization described under Section

457, Internal Revenue Code of 1986;

(D) a nonqualified deferred compensation arrangement established

or maintained by an employer or plan sponsor;

(E) settlements of or assumptions of liabilities associated with

personal injury litigation or any dispute or claim resolution

process; or

(F) prepaid funeral benefits contracts, as defined by Chapter

154, Finance Code.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.004. NO CAUSE OF ACTION CREATED. This chapter may not

be construed to create or imply a private cause of action for a

violation of this chapter.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.005. RULES. The commissioner may adopt reasonable

rules in the manner prescribed by Subchapter A, Chapter 36, to

accomplish and enforce the purpose of this chapter.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

SUBCHAPTER B. DUTIES OF INSURERS AND AGENTS

Sec. 1115.051. SUITABILITY OF ANNUITY PRODUCT REQUIRED. (a)

Before the execution of a purchase or exchange of an annuity

resulting from a recommendation, an agent, or the insurer if an

agent is not involved, must make reasonable efforts to obtain:

(1) information from the consumer concerning:

(A) the consumer's financial status;

(B) the consumer's tax status; and

(C) the consumer's investment objectives; and

(2) other relevant information used or considered to be

reasonable by the agent or that insurer in making recommendations

to consumers.

(b) In a recommendation to a consumer regarding the purchase of

an annuity or the exchange of an annuity that results in another

insurance transaction or series of insurance transactions, an

agent or the insurer, if an agent is not involved, has reasonable

grounds for believing that the recommendation is suitable for

that consumer based on the facts disclosed by the consumer

regarding the consumer's:

(1) investments and other insurance products; and

(2) financial situation and needs.

(c) An agent, or an insurer if an agent is not involved, has no

obligation to a consumer related to a recommendation if the

consumer:

(1) refuses to provide relevant information requested by the

agent or insurer;

(2) fails to provide complete or accurate information on the

request of the agent or insurer; or

(3) decides to enter into a transaction that is not based on a

recommendation of the agent or insurer.

(d) An agent's or insurer's recommendation subject to Subsection

(a) must be reasonable under all the circumstances actually known

to the agent or insurer at the time of the recommendation.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.052. COMPLIANCE SYSTEM. (a) Each insurer shall

operate a system, that is reasonably designed to achieve

compliance with this chapter, to supervise recommendations.

(b) An insurer may comply with Subsection (a) by complying with

Subsections (c)-(e) or by establishing and maintaining the

insurer's own compliance system that complies with Subsection

(c). Each agent and independent agency shall adopt an insurer's

compliance system or shall establish and maintain such a system.

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

include:

(1) maintenance of written procedures; and

(2) periodic reviews of the insurer's or agent's records in a

manner reasonably designed to assist in detecting and preventing

violations of this chapter.

(d) An agent or insurer may contract with a third party,

including an agent or independent agency, to establish and

maintain a compliance system with respect to agents under

contract with or employed by the third party. The agent or

insurer shall make reasonable inquiries sufficient to ensure that

the third party is performing the functions required under

Subsection (a), and shall take any action reasonable under the

circumstances to enforce the contractual obligation to perform

those functions. An agent or insurer may comply with the

obligation to make reasonable inquiries by:

(1) annually obtaining certification from a senior manager of

the third party that the third party is performing the required

functions; and

(2) periodically selecting third parties, based on reasonable

selection criteria, for a review to determine whether the third

parties are performing the required functions.

(e) An agent or insurer shall adopt procedures for conducting a

review under Subsection (d)(2) that are reasonable under the

circumstances. An insurer that contracts with a third party

under Subsection (d) and that complies with the requirements to

supervise under Subsection (d) is deemed to have complied with

the insurer's responsibilities under Subsection (b).

(f) An insurer, agent, or independent agency is not required by

this section to:

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

transactions; or

(2) include in the compliance system an agent's recommendations

to consumers of products other than the annuities offered by the

insurer, agent, or independent agency.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.053. CERTIFICATION REQUIREMENTS. (a) On request by

an insurer, an agent or independent agency that contracts with an

insurer under Section 1115.052(d) shall promptly obtain a

certification as described under Section 1115.052(d)(1) or give a

clear statement that it is unable to meet the certification

criteria.

(b) A person may not provide a certification under Section

1115.052(d)(1) unless the person:

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

functions; and

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

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.054. COMPLIANCE WITH CERTAIN NATIONAL STANDARDS. (a)

Compliance with the conduct rules of the Financial Industry

Regulatory Authority relating to suitability, or the rules of

another national organization recognized by the commissioner,

satisfies the requirements under this chapter for the

recommendation of annuities registered under the Securities Act

of 1933 (15 U.S.C. Section 77a et seq.) or rules or regulations

adopted under that Act.

(b) This section does not affect or limit the commissioner's

ability to enforce this chapter.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1043, Sec. 1, eff. September 1, 2009.

Sec. 1115.055. RECORDKEEPING REQUIREMENTS. (a) Each agent,

independent agency, and insurer shall maintain, or otherwise be

able to make available to the commissioner, records of the

information collected from the consumer and other information

used in making a recommendation that was the basis for a

transaction subject to this chapter until the fifth anniversary

of the date on which the transaction is completed by the insurer.

(b) An insurer may, but is not required to, maintain

documentation on behalf of an agent.

(c) Records required to be maintained under this section may be

maintained in paper, photographic, microprocess, magnetic,

mechanical, or electronic media by any process that accurately

reproduces the actual document.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.056. AGENT EDUCATION REQUIREMENTS. (a) A resident

agent that intends to sell, solicit, or negotiate a contract for

an annuity in this state or to represent an insurer in relation

to such an annuity must submit evidence satisfactory to the

department of completion of at least four hours of training

relating to annuities before soliciting individual consumers for

the purpose of selling annuities.

(b) The training required under Subsection (a) may be used to

satisfy the continuing education requirements imposed under this

code and rules adopted under this code for issuance of a license

under this code.

Added by Acts 2009, 81st Leg., R.S., Ch.

362, Sec. 1.001, eff. September 1, 2009.

SUBCHAPTER C. ENFORCEMENT

Sec. 1115.101. MITIGATION. The commissioner may order:

(1) an insurer to take reasonable appropriate corrective action

for any consumer harmed by the insurer or by the insurer's agent

because of a violation of this chapter;

(2) an agent to take reasonably appropriate corrective action

for any consumer harmed by the agent's violation of this chapter;

and

(3) a managing general agent or independent agency that employs

or contracts with an agent to sell, or solicit the sale of,

annuities to consumers to take reasonably appropriate corrective

action for any consumer harmed by the agent's violation of this

chapter.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.

Sec. 1115.102. SANCTIONS. (a) The commissioner may impose

sanctions as provided by Chapter 82 for a violation of this

chapter.

(b) The commissioner may reduce or eliminate a sanction for a

violation of this chapter otherwise applicable if corrective

action for the consumer was taken promptly by the agent or

insurer after a violation was discovered.

Added by Acts 2007, 80th Leg., R.S., Ch.

736, Sec. 1, eff. September 1, 2007.