ALABAMA

BILL NUMBER: HB 146

AMENDS CODE SECTION: An act relating to insurance, to provide and adopt the Interstate Insurance Product Regulation Compact to permit uniform approval of individual and group annuity, life, disability income, and long-term care insurance policies, and thus permit this state to become a member of the Interstate Insurance Product Regulation Commission, with the Commissioner of Insurance designated to serve as the representative of this state to the Commission.

STATUS: Pending Committee Action  April 5, 2007

SUMMARY: Under existing law, individual and group annuity, life, disability income, and long-term care insurance policies must be filed with the Commissioner of Insurance prior to their use in this state. This bill would adopt the Interstate Insurance Product Regulation Compact to permit uniform approval of individual and group annuity, life, disability income, and long-term care insurance policies, and thus permit this state to become a member of the Interstate Insurance Product Regulation Commission, with the Commissioner of Insurance designated to serve as the representative of this state to the Commission.

ALABAMA seeks to join 29 other states that have adopted the Interstate Insurance Product Regulation Compact (IIPRC). As an update, the Compact website is reporting that in February, the Compact’s Commission adopted its final 2007 Operating Budget, nine new Uniform Product Standards, three new Operating Procedures, and is moving expeditiously to adopt more new Standards. Currently, the Interstate Insurance Compact consists of 29 Member States. IIPRC will serve as a central point of streamlined filing for life, annuities, long–term care, and disability income products. The IIPRC and its Management Committee on March 9, 2007, met in conjunction with the National Association of Insurance Commissioners (NAIC) 2007 Spring National Meeting in New York City. Focused on its operational start–up, Member States reviewed the Commission’s proposed product filing system and technology platform. As reported on the IIPRC website, it announced its permanent Committee structure and appointed its eight–member Industry Advisory Committee. The Compact will receive applications for its Advisory Board from non-profit consumer organization with membership of 25 or more through April 16, 2007.    

BILL NUMBER: SB 1073

AMENDS CODE SECTION: An act amending section 20-1232, Arizona Revised Statutes; relating to individual deferred annuities.

STATUS: Transmitted to Governor April 4, 2007

SUMMARY: Arizona has proposed legislation changing the notice and payout requirements for deferred annuity owners. The proposed text changes include a requirement that the company notify the annuity owner of the owner’s rights under the contract within 30 days of the date of maturity. It requires the company to pay any amounts due under the contract within 30 days from the date the amount becomes payable. In addition, it limits the period that the company has the right to defer the payment of the cash surrender benefit to 180 days rather than 6 months. It further requires that the annuity owner be notified that the company has requested a deferral within 15 days of the date that any request for withdrawal is received and requires the company to address the reason why payment cannot take place within the required time period in its request to the Director. Any transfer of monies to another annuity company designated by the contract owner must take place within 30 days after all required forms relating to the transfer are filed with the original annuity company. The bill also makes technical and conforming changes.

The most interesting aspect of this legislation involves the transfer of monies from one annuity carrier to another. Currently, if an annuity is surrendered or replaced, the original carrier usually extends conservation efforts toward its owner. In this case, the original carrier has 30 days from the date all ‘necessary’ forms are received to conclude the transfer of funds. Amendments to the Bill include a clarification pertaining to the transfer of funds “pursuant to section 1035 of the internal revenue code…” Meaning, the requirement is intended to apply to 1035 transfers.

For carriers, the question remains which documents are ‘necessary’? Guidance to determine whether conservation letters are considered to be ‘necessary’ forms would be helpful. The industry has been particularly resourceful when it comes to facilitating 1035 transfers. Many transfers take much longer than 30 days. Arizona’s new rule will force carriers to streamline processes. Carriers that suspect questionable motives of the producer will need to act quickly to notify the division of insurance.

ARKANSAS

BILL NUMBER: SB 178

AMENDS CODE SECTION: Arkansas Code Title 23, Chapter 63 is amended to add an additional subchapter 23-63-1901

STATUS: Initially read Jan 23, 2007. Not currently scheduled on any agenda

SUMMARY: An Act to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.

See ALABAMA Comments.

CALIFORNIA

 BILL NUMBER: AB 267

AMENDS CODE SECTION: An act to add Article 6.2 (commencing with Section 784.50) to Chapter 1 of Part 2 of Division 1 of the Insurance Code, relating to annuity transactions.

 STATUS: Pending, referred to Committee on Insurance, read and amended on March 29, 2007

 SUMMARY FROM LEGISLATIVE COUNSEL'S DIGEST: 

In California, insurance law requires a life insurance agent to provide specified disclosures to seniors 65 years of age or older in certain circumstances. Existing law also prohibits the sale of an annuity to a senior in specified circumstances. This bill would require the insurance producer agent or insurer, when making a recommendation to a senior consumer, as defined, for the purchase or exchange of an annuity to have reasonable grounds for believing that the recommendation is suitable for the senior based on the facts disclosed by the senior relating to his or her financial situation and needs.

This bill would further provide that before the purchase or exchange of an annuity that the insurance producer or insurer shall make reasonable efforts to obtain specified information to assist in making recommendations to the senior consumer. If a senior consumer refuses or fails to provide all specified relevant information, the insurance producer or insurer recommendation must be reasonable under all circumstances that were known at the time.

This bill would also require insurers to establish a system, as specified, to supervise compliance with the placement of annuities to senior consumers. Insurers would be allowed to with a 3rd party to establish a system of supervision to ensure compliance by insurance producers, as specified. This bill would, with respect to the Insurance Commissioner, specify his or her authority to order insurance producers and insurers to protect the senior consumer, as specified.

It would require insurers, independent agencies, and insurance producers to maintain, and make available to the commissioner, records of the information collected and other information used in making recommendations that were the basis of insurance transactions, for 5 years. An insurer would be permitted to maintain documentation on behalf of an insurance producer.

This Bill marks no less than 4 years of attempting to address suitability for annuity sales in California. In the past, many industry advocates encouraged certain members of California’s legislature to model its laws on the NAIC suitability regulations. California’s Bill, for the first time, closely resembles the NAIC model.

Although, it is important to note that a significant difference from the NAIC model still exists. This California Bill includes the definition of “senior,” and states that in the event of a joint purchase by more than one party, the purchaser will be considered to be a senior consumer if any of the parties is age 65 years of age or older.

Most recently, the Bill was amended to include the following provision, “An individual life agent who is not employed by a general agent or independent agency shall not supervise his or her own recommendations.” Also, California has added language granting the commissioner power to order restitution for a senior harmed by an unsuitable sale and clarifies that all penalties referenced in the act are in addition to remedy already provided in other acts. It will not be surprising to see additional amendments to this Bill during this session.

CALIFORNIA 

BILL NUMBER: SB 573

AMENDS CODE SECTION: An act to add Article 6.2 (commencing with Section 784.50) to Chapter 1 of Part 2 of Division 1 of the Insurance Code, relating to annuity transactions.

STATUS: Pending, referred to Committee on Banking, Finance & Insurance, hearing scheduled April 18, 2007

SUMMARY FROM LEGISLATIVE COUNSEL'S DIGEST

Existing California law generally regulates insurance, including annuity products. Existing law requires a life insurance agent to provide specified disclosures to seniors 65 years of age or older in certain circumstances. Existing law also prohibits the sale of an annuity to a senior in specified circumstances. This bill would require the life insurance agent or insurer, when making a recommendation to a senior consumer, as defined, for the purchase or exchange of an annuity to have reasonable grounds for believing that the Recommendation is suitable for the senior based on the facts disclosed by the senior relating to his or her financial situation and needs. The bill would provide that the insurer shall not issue or maintain in force an annuity it determines was recommended without reasonable grounds. This bill would further provide that before the purchase or exchange of an annuity that the life agent or insurer shall make reasonable efforts to obtain specified information to assist in making recommendations to the senior consumer. If a senior consumer refuses or fails to provide all specified relevant information, the life agent or insurer recommendation must be reasonable under all circumstances that were known at the time. This bill would also require insurers to establish a system, as specified, to supervise compliance with the placement of annuities to senior consumers. Insurers would be allowed to with a 3rd party to establish a system of supervision to ensure compliance by life agents, as specified. This bill would, with respect to the Insurance Commissioner, specify his or her authority to order life agents and insurers to protect the senior consumer, as specified.

This bill would require insurers, managing general agents, independent agencies, and life agents to maintain, and make available to the commissioner, records of the information collected and other information used in making suitability recommendations, for 5 years. An insurer would be permitted to maintain other records used to determine suitability. This bill would require insurers to annually report to the commissioner specified information relating to annuity placement. This bill would also require the department to report to the Legislature, on or before January 1, 2009, specified information relating to annuity placement, including the total number of complaints received by the department from senior consumers involving annuities for the calendar year beginning with 2005-06.

California’s Senator Scott has introduced SB 573 regarding suitability for seniors in annuity transactions. Similar to AB 267 and the NAIC suitability model, this Bill also tackles suitability. Included in the definition of SB 573 is the definition of "Senior consumer" meaning a person 65 years of age or older. It also distinguishes that in the event of a joint purchase by more than one party, the purchase will be considered to be a senior consumer if any of the parties is age 65 years of age or older. Contrary to previous proposals, AB 267 has included additional language to Code Section 784.57. stating, ”On or before January 1, 2009, the department shall report to the Legislature on the number of applications received by insurers for annuities from residents of this state, age of the applicants, total number of applications for annuities that were rejected and the general reasons therefore, for the calendar years 2006-07, and 2007-08. The report shall also include the total number of complaints received by the department from senior consumers involving annuities for the calendar years 2005-06, 2006-07, and 2007-08.” It will be interesting to observe the opposition, if any.

CALIFORNIA

 BILL NUMBER: AB 1271

AMENDS CODE SECTION: An act to amend Title 33 of the O.C.G.A.

STATUS: Pending, referred to Committee on Insurance 3/15/07, hearing scheduled April 25, 2007

SUMMARY FROM LEGISLATIVE COUNSEL'S DIGEST

Existing California law provides for the regulation of life insurers by the Department of Insurance. Under existing law, an agent is required to provide specified information to an applicant for life insurance or for an annuity if the applicant is replacing existing coverage and to provide the applicant with a notice regarding replacement of that coverage. Existing law requires an insurer that is issuing a new policy that is a replacement of existing life insurance or an annuity, defined as the replacing insurer, to provide specified information to the insurer whose policy or annuity will be replaced, defined as the existing insurer. This bill would, in addition, require an agent to prepare a contract comparison summary of the coverage provided by the existing and replacing insurers and would require that information be included in the replacement notice information concerning surrender charge penalties and interest rates. The bill would require an insurer to confirm whether an applicant is replacing existing coverage, and if the application is for replacement coverage, send the applicant specified information relating to the replacement of coverage. The bill would also require the replacing insurer to send the existing insurer a copy of the completed contract comparison summary, and both the existing and replacing insurers would be required to confirm its accuracy, as specified. The bill would require the replacing insurer to allow cancellation without penalty or extend the trial period, as specified, of coverage if material inaccuracies were communicated about the replacement coverage or it is not a substantial benefit to the insured.

Currently, producers must provide a form to the consumer when the sale involves the replacement of a product, based on the NAIC Replacement Model. The replacement language for annuity contracts includes an offer to provide a comparison of the product being replaced and the product being purchased. These forms offer the consumer the ability to request such a comparison. There is no public readily available statistical information regarding how often a consumer does in fact request the comparison information when replacing a product. California’s proposed legislation will change this procedure in California.

Under Bill 1271, the comparison information is required to be delivered to the consumer for all replacements. It will no longer be necessary for a consumer to initiate a request for information. It is important to note that this Bill is sponsored by California’s Insurance Commissioner. The Bill is a result of information circulating in the California Department of Insurance reporting that the replacement business in significantly dwarfs the new premium written in California. Replacement practices are a big concern in California.  

CALIFORNIA

BILL NUMBER: SB 739

AMENDS CODE SECTION: An act to amend Section 10127.7 of, and to add Section 789.15 to, the Insurance Code, relating to life insurance and annuities.

STATUS: Pending, hearing scheduled April 18, 2007

SUMMARY FROM LEGISLATIVE COUNSEL'S DIGEST

Existing California law regulates the sale of life insurance and annuities in particular sales to seniors, as specified. This bill would provide that if a senior makes a written or telephonic request for a meeting the same day to discuss the purchase of specific life insurance or annuities having an initial face amount of $15,000 or less that are designated by the purchaser for payment of funeral and burial expenses, a notice, as specified, shall be delivered to the senior prior to the start of the meeting.

The bill would also provide that the sale of a burial or funeral policy shall not create an existing insurance relationship for the purposes of the required delivery of a specified written notice to seniors 24 hours before meeting in their home to sell other life insurance or annuities. Existing law provides that life insurance policies with a face value of less than $10,000, issued after July 1, 1974, shall contain a notice permitting the return of the policy within a period of time designated in the notice, which may not be less than 10 or more than 30 days. This bill would provide that a life insurance policy or annuity with a face value of $15,000 or less, issued after January 1, 2008, shall contain a notice permitting the return of the policy within 30 days.

This Bill seeks to change the free look period from no less than 10 days, to no less than 30 days for annuity contracts purchased with a face amount of $15,000 or less. The change in free look periods will cause a carrier to review its policy cover language regarding free looks to assure compliance with the rule, if enacted. Many states require 30 day free look periods on all annuities, and under some circumstances, the change will not be a difficult transition.      

CONNECTICUT

BILL NUMBER: SB 61/SB 1105

AMENDS CODE SECTION: An Act To Be Entitled to join the Interstate Insurance Product regulation Compact to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.   

STATUS: Pending, tabled for calendar Mar 13, 2007

SUMMARY: An Act to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.

See ALABAMA Comments.

DELAWARE

Delaware Insurance regulations: DISCLOSURE, BENEFICAIRY DESIGNATION OF STATE

CITATION:  20 CFR Sec. 416.1202, Section 20330 Countable Resources Computation. Specifically Section 20330.4.1 Annuities, See Section 20 CRF 416.1201(a).

STATUS: Adopted Feb 15, 2007  Effective Date: Mar 10, 2007

AGENCY CONTACT:  Sharon L. Summers, Policy and Program Development Unit, Division of Medicaid and Medical Assistance.

SUMMARY: Delaware Health and Social Services Division of Medicaid and Medical Assistance initiated proceedings to amend the Division of Social Services Manual. The proposal amends a rule in the Division to determine eligibility for medical assistance regarding retirement funds. The purpose of the amendment is to provide guidance on when and how to count pension plans such as IRAs for the purpose of determining eligibility for Long Term Care Medicaid.

The language reads as follows: “Spouses that claim the income allowance is inadequate to meet the needs of the community Spouse may request additional resources be set aside to bring their income up to the minimum maintenance needs allowance. These requests MUST go through the fair hearing process in order to retain excess resources for their protected income share.” In these cases, at the death of the annuity’s owner, the beneficiary of the annuity must be the estate of the Medicaid recipient. By naming the annuity owner’s estate, this enabled the state to recover funds which were expended for the care of the owner from any annuity amount remaining at the death of the annuity owner. In other words, a designation of a beneficiary other than the owner shall not be effective. States are enforcing recovery rules against the estate of Medicaid recipients.

DISTRICT OF COLUMBIA

 BILL NUMBER: B 16-0827

AMENDS CODE SECTION: An Act To Be Entitled the Interstate Insurance Product Regulation Compact to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.    

STATUS: Pending

SUMMARY: An Act to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.

See ALABAMA Comments.

FLORIDA

BILL NUMBER: HB 943

AMENDS CODE SECTION: An Act To Be Entitled the Interstate Insurance Product Regulation Compact to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.    

STATUS: Pending

SUMMARY: An Act to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.

See ALABAMA Comments.

HAWAII

BILL NUMBER: SB 1008

AMENDS CODE SECTION: A Bill for an act relating to annuities.

STATUS: Pending, Passed House Committee on Finance (with amendments) March 30, 2007

SUMMARY: The legislature finds that it is necessary to protect consumers who purchase annuity products. This Act is to ensure that the insurance needs and financial objectives of consumers in a transaction involving annuity products are appropriately addressed. The act clarifies language prohibiting rebates to include annuity transactions. The act also creates a new prohibited unfair method of competition and unfair or deceptive acts or practices by adding the following language: FAILURE TO OBTAIN INFORMATION. FAILURE OF ANY INSURANCE PRODUCER, OR AN INSURER WHERE NO PRODUCER IS INVOLVED, TO COMPLY WITH SECTION 431:10D-C(A), (B), OR (C) BY MAKING REASONABLE EFFORTS TO OBTAIN INFORMATION ABOUT A CONSUMER BEFORE MAKING A RECOMMENDATION TO THE CONSUMER TO PURCHASE OR EXCHANGE AN ANNUITY.

Hawaii has used the language from its suitability laws and added it to its unfair and deceptive trade practice laws. This Bill specifically lists unsuitable recommendations as an unfair trade practice under Hawaii law. Why is this significant? It depends. From a prosecutor’s point of view, if Hawaii has other case law which sets precedence for claims against producers, it essentially gives the prosecutor a track to run on for pursuing unsuitable transactions. In other words, instead of having to create new arguments to prove violations of the new suitability rules, the prosecutor may make the same arguments as other unfair practice violations and just inserts suitability as the prohibited conduct. Is this technical? Yes, but please remember, prosecuting agents for legal violations of the insurance code is often easier if a similar case has been successfully presented before. Some laws do not allow for a private cause of action either. Meaning, the insurance commissioner can use the law as a basis to file a complaint against a producer, a criminal prosecution; however, the consumer has no recourse under such criminal law. A separate law which allows or creates a private cause of action opens the door for consumers to seek civil recourse against the producer for the same conduct. By adding the suitability language to the unfair and deceptive trade practice laws it may give consumers an extra legal tool when pursuing civil judgments against agents for unsuitable transactions. A more complete review of Hawaii’s laws to determine whether this additional language assists consumers in their private causes of action against producers would be necessary. In any event, a consumer may still use the violation of the unfair trade practice law to show the standard of care in a civil negligence suit against a producer. In any event, arguments may successfully integrate such strong words as “deceptive” and “unfair” to persuade a fact-finder that a producer’s unsuitable recommendation should be deemed unlawful. 

ILLINOIS

Illinois Insurance regulations: UNFAIR AND DECEPTIVE PRACTICES; DISCLOSURE

State ID: 31 IR 3228

CITATION:  50 IAC 909.10, .20, .85, .90, .100

AGENCY CONTACT:  James C. Rundblom, Staff Attorney, Department of Financial and Professional Regulation, Division of Insurance, 320 West Washington, 4th Floor, Springfield, IL, 62767, 217-785-8559

STATUS: March 2, 2007 Proposed Rule

Comment Deadline April 16, 2007

SUMMARY: Proposes rules regarding provisions borrowed from California law and are designed to prohibit certain predatory practices in the sale of variable life insurance and annuities to senior citizens.

The proposed regulation would require producer’s contracting persons 65 or older, and those whose names were acquired from a lead generation list, to disclose that fact upon initial contact. The regulation would also prohibit certain deceptive practices such as implying loss of federal benefits, misleading nature of a seminar or advertisement and using a misleading identity or addresses of the producer.

ILLINOIS

Illinois Insurance regulations: SUITABILITY IN ANNUITY TRANSACTION

State ID: 31 IR 3241

CITATION:  50 IAC 3120.10 thru 3120.80

STATUS: March 2, 2007 Proposed Rule

Comment Deadline April 16, 2007

SUMMARY: Proposes rules regarding suitability standards, exemptions, record keeping requirements, and provisions for noncompliance. 

The proposed regulation addresses suitability for annuity recommendations. The regulation is similar to the NAIC suitability for annuity transactions model. In this regulation the record keeping requirements are 7 years.

ILLINOIS

BILL NUMBER: HB 676

AMENDS CODE SECTION: An Act To Be Entitled the Interstate Insurance Product Regulation Compact to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.    

STATUS: Pending

SUMMARY: See ALABAMA Summary.

See ALABAMA Comments.

INDIANA

BILL NUMBER: SB 171

AMENDS CODE SECTION: A Bill to amend the Indiana Code 27-4 concerning insurance.

STATUS: Pending, Passed out of Senate Committee April 3, 2007

SUMMARY: Annuity recommendations; unfair or deceptive acts and practices. Makes the law concerning annuity purchase or exchange recommendations made to senior consumers apply to all consumers. The Bill provides that engaging in certain dishonest or predatory insurance practices in marketing or sales of insurance to members of the United States Armed Forces are unfair and deceptive acts and practices of insurance. Allows the insurance commissioner to adopt rules to define and protect members of the United States Armed Forces from dishonest or predatory insurance practices. The proposed effective date would be January 1, 2008  

INDIANA’s Bill proposes to remove the “senior” restriction from its suitable recommendation language. This is not a surprise as the NAIC removed “senior” from its model rule as well. The other proposed language specifically addresses selling products to military personal. Having not heard of abusive sales to military personal, it is unclear whether a rise in particular conduct has caused this amendment. While it is well known that deployment of military personal has been continuous for the past several years, the timing of such an amendment may easily be connected with recent years of an increased appreciation for those serving in the US Armed Forces, although Gorilla Compliance was unable to confirm whether such conduct has regularly occurred prior to this amendment. 

IOWA

Iowa Insurance regulations: UNFAIR TRADE PRACTICE STATE ID: ARC 5323

CITATION:  IAC, 15.8(4), 191-15.68(507B), 191-15.69(507B), 15.69(1), 15.69(2), 191-15.70(507B), 191.15.71(507B), 15.71(1) through 15.71(5), 191-15.72(507B), 15.72(1), 15.72(2),

STATUS: March 21, 2006 Proposed Rule

Comment Deadline: July 11, 2006

Effective Date: January 1, 2007

SUMMARY: Sets forth the standards and procedures for recommendations made to consumers that result in transactions involving annuity products so that the insurance needs and financial objectives of consumers at the times of the transactions are appropriately addressed.

Similar in nature to legislation and regulations passed in other states, this regulation includes a requirement that an insurer must establish a system of supervision which includes periodic review of records. Independent agencies will either need to adopt an insurer’s supervisory system or establish its own system. Record keeping requirements will be 10 years. Prior to this regulation, Iowa had a broad prohibition against unsuitable transactions. This regulation adds more specificity to the prohibited practices.  

IOWA 

Iowa Insurance regulations: UNFAIR TRADE PRACTICES

CITATION:  IAC 191-15.80(507B, 522B) through 191- 15.83(507B,522B), 15.83(1) through 15.83(8), 191- 15.84(507B,522B), 15.84(1), 15.84(2), 15.84(3), 191- 15.85(507B,522B),

STATUS: Effective Date January 1, 2008

SUMMARY: Requires certain specific training for insurance producers who wish to sell indexed annuities or indexed life insurance in Iowa. The regulation adopts a new division in Iowa, Division VI - Indexed Products Training Requirement.

Iowa producers will be required to have a minimum of 4 hours of CE credits concerning index annuity products. Training is to include information on all areas listed on the Iowa Division of Insurance website for index products (such topics are currently not available). An insurer must verify the training prior to allowing a producer to sell as indexed product for that insurer. Training may be delivered by self-study or class room. California adopted a similar provision requiring 4 hours of CE devoted only to annuities in 2005. The California department created a working group to develop the extensive and specific curriculum requirements. It is a strong possibility that other states will join Iowa and California in requiring specialized CE training for annuities. The specific curriculum which qualifies for the CE will be published in the near future. 

IOWA

BILL NUMBER: HSB 191/SSB 1211

AMENDS CODE SECTION: An Act creating a private cause of action for damages resulting from certain illegal insurance trade practices and providing an effective date. Amends Section 1. Section 507B.2, and Sec. 2. Section 507B.7, subsection 1, paragraph b, adding Sec. 3. 507B.15 Private cause of action

STATUS: Pending, assigned to Senate judiciary

SUMMARY: This bill creates a private cause of action for damages to consumers that result from certain illegal insurance trade practices. The bill provides that a consumer, who suffers damage or injury as the result of a practice that has been determined by the commissioner of insurance to violate specified provisions of Code chapter 507B, may bring an action at law to recover actual and punitive damages. The standard of proof to prevail on a claim under this section is by a preponderance of the evidence. The bill authorizes the court to order equitable relief as it deems necessary to protect the public from further violations, including temporary and permanent injunctive relief. The bill requires the court to award a consumer who is the prevailing party in such an action the costs of the action plus reasonable attorney fees, including litigation expenses.

Iowa has created a study bill, in both the house and senate, to examine creating a private right of action for consumers damaged as a result of the violation of certain insurance code provisions. If enacted, the proposed language will allow consumers to use statutory prohibitions as a means of filing a civil action. In addition, the language includes the right for the consumer to collect punitive damages (after meeting the statutory requirement), attorney’s fees and litigation expenses. Attorney’s fees, while ordinarily not part of a civil judgment, are generally only awarded if allowed by specific contract language or statute. In this case, attorney’s fees would now be allowed by statute. 

LOUISIANA 

Louisiana Insurance regulation: SUITABILITY IN ANNUITY TRANSACTIONS

AGENCY: Department of Insurance/Office of Commissioner

CITATION: LAC 37:XIII.Chapter 117, Regulation 89

STATUS: September 20, 2006 Proposed Rule

Comment Deadline: Oct 27, Dec 20, 2006

Rule Adoption Effective Date: January 1, 2007

SUMMARY:  Implements standards and procedures to be adhered to by insurance producers, or an insurer where no producer is involved, with regard to determining the financial suitability of annuity products prior to recommending such a product to consumers. Sets forth standards and procedures for recommendations to consumers that result in a transaction involving annuity products so that the insurance needs and financial objectives of consumers at the time of the transaction.

This bill is similar to the NAIC model with certain variations, including the record keeping requirements of three years. For producers licensed in multiple jurisdictions, the record retention requirement should be carefully monitored. Each state may vary its record retention time limits. 

MAINE

Maine Insurance regulation: SUITABILITY IN ANNUITY TRANSACTIONS

CITATION:  02-031-917, Chapter 917

STATUS: October 20, 2006 Proposed Rule

Comment Deadline: November 20, 2006

Effective Date: July 1, 2007

SUMMARY: Sets forth standards and procedures for recommendations to consumers that result in a transaction involving an annuity product so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed and nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation.

Unlike the proposed language in Iowa, Maine specifically denies a private cause of action under the suitability regulation. Again, this may be a critical issue for future regulations. The NAIC suitability in annuity transactions model prohibits a private cause of action. Arguments that such an allowance opens the industry flood gates for litigation may be expected. The question then arises whether a division of insurance should expend its resources to pursue such violations when a consumer may use the same statute to pursue the violation in a civil action.

MARYLAND 

Maryland Insurance regulation: SUITABILITY IN ANNUITY TRANSACTIONS

CITATION:  COMAR 31.09.12.01-.09

State ID: 07-003

STATUS: January1, 2007 Proposed Rule

Comment Deadline: February 5 2007

SUMMARY: Sets forth standards and procedures for recommendations to consumers that result in a transaction involving an annuity product so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed.

Again, following the NAIC suitability in annuity transactions model, Maryland is one of many states adhering to suitability review. The fact that states tend to follow the NAIC model is productive for the industry, including carriers, producers, and regulators. Because insurance is regulated state by state, insurance laws and rules may be different from jurisdiction to jurisdiction. The purpose of the NAIC is to formulate model rules to assist the industry in uniformity. It also makes sense that the NAIC is comprised of regulators from across the nation so a balanced approach can result from their combined efforts. 

MASSACHUSETTS

Massachusetts Insurance regulation: CONSUMER PROTECTION IN ANNUITY TRANSACTIONS

CITATION:  211 CMR 96.00

STATUS: February 24, 2006 Proposed Rule

Rule Adoption: May 19, 2006

Effective Date: November 5, 2006

SUMMARY: Sets forth standards and procedures for insurance producers, or insurers where no producer is involved, who make recommendations to consumers that result in a transaction involving annuity products to improve consumers' understanding of the annuity products for which recommendations have been made. The regulation enables the insurance needs and financial objectives of consumers at the time of transaction to be appropriately addressed.

This regulation was actually proposed in 2006. Because regulations are being

included in the ARC publication beginning in spring 2007, we decided to include several regulations, especially those related to suitability, in this edition of ARC.

MASSACHUSETTS 

BILL NUMBER: HB 1031

AMENDS CODE SECTION: Section 182, of chapter 175 of the General Laws, as appearing in the 2004 official Edition, shall be amended by striking the section in its entirety and replacing it with the following section: Section 183, of chapter 175 of the General Laws, as appearing in the 2004 official Edition, shall be amended by striking the section in its entirety and replacing it with the following section: Section 3, of chapter 176D of the General Laws, as appearing in the 2004 official Edition, shall be amended by striking paragraph (8) in its entirety and replacing it with the following paragraph. All acts relating to insurance rebates.

SUMMARY: The Bill proposes to prohibit rebates and states, ”Rebates- Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any insurance contract, including but not limited to a contract for life insurance, life annuity or accident and health insurance, or agreement as to such contract other than as plainly expressed in the insurance contract issued thereon, or paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance or annuity any rebate of premiums payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement, in an amount greater than one-hundred dollars, whatever not specified in the contract; or giving, or selling, or purchasing or offering to give, sell, or purchase as inducement to such insurance contract, or annuity or in connection therewith, any stocks, bonds, or other securities of any insurance company or other corporation, association, or partnership, or any dividends or profits accrued thereon, or anything of value whatsoever not specified in the contract.”

Rebating is a concept that has been in the insurance industry for many years, and most commonly refers to rebating of premiums. Included in rebating laws is the concept of using ‘valuable consideration’ as an inducement to purchase an insurance product. With the increased number of seminars providing free meals and free consultations, many states have revamped their rebating statutes. In general, state insurance codes prohibit producers from offering consumers anything of value as an inducement to purchase an insurance product. Laws often use the word ‘consideration’ so as to avoid listing items which can not be given in conjunction with a product sale. Consideration may be anything of value, tangible or intangible. Money is the most common form of ‘consideration’, but movie passes, gift certificates, and even dinner, may also be deemed ‘consideration’. Even giving up a legal right may be sufficient consideration. Massachusetts Bill 1031 does not itemize what may be deemed consideration; however, it does set a dollar amount limit at $100.00 to be presented to consumers as an inducement to purchase an insurance product. The question remains what is ‘consideration’ to be included in the $100.00 limit? Is it necessary to include the seminar room rental fee, material cost (folder, pen, paper-all given to the attendees), food, drink, and tip, all added up (because it is all paid by the producer and given to the attendees) and then divided among the number of attendees at a seminar for a per attendee amount? If that amount is over $100.00, will that violate the Massachusetts law? Does the cost of the invitation, postage, and list, need to be added to the per attendee cost? For every person you find who replies ‘yes’ you will find one that replies ‘no’.  Other states have specifically addressed seminar presentations which offer ‘free’ meals and prohibited the solicitation of products at the event. A look at case law in Massachusetts to review what a court has held to be ‘valuable consideration’ would need to occur to shed light on the above questions. 

MISSOURI

BILL NUMBER: SB 304/HB 789

AMENDS CODE SECTION: An Act To Be Entitled the Interstate Insurance Product Regulation Compact to help states join together to establish an interstate compact to regulate designated insurance products; to adopt the interstate insurance product regulation compact; and for other purposes.    

STATUS: Pending

See ALABAMA Comments.

MONTANA

BILL NUMBER: SB 535

AMENDS CODE SECTION: Adding new sections .    

STATUS: In Second House Committee

SUMMARY LEGISLATIVE TEXT: A Bill for an act entitled: An act revising laws relating to annuities; creating the Montana Suitability in Annuity Transaction Act; proving for exemptions and establishing duties for insurers, producers, and independent agencies. The Bill also creates disclosure requirements, including the use of the NAIC Buyer’s Guide. The Bill provides for reports to annuity contract holders and penalties for violations of the Act.

While the Bill is similar to the NAIC model, certain changes have been made to the language. The “senior” definition language has been removed from the Bill making the legislation applicable to all annuity transactions. The language also states a 5 year document retention requirement. In addition, the Bill removes ‘variable annuity’ from the Bill and accordingly, the provision that compliance with NASD rules shall be deemed compliance with this regulation is also removed. This means the Bill only applies to fixed annuities. The Bill also sets forth that when the application for an annuity contract is taken by means other than in a face-to-face meeting, a buyer's guide shall be delivered to an annuity applicant not later than 5 business days after the completed application is received by the insurer, including other variations of solicitation. The disclosure requirements are also set forth in certain detail. This Bill has an incredible amount of information which should receive a carrier’s and producer’s full attention if transacting business in Montana.  While most carriers, if transacting business in multiple jurisdictions, are probably already meeting such requirements because of other state rules, it deserves attention to be sure compliance in Montana will not be burdensome if and when the legislation is passed and becomes effective. This is due to the fact that the Montana Bill is very specific in nature.

NEBRASKA

BILL NUMBER: LB 120

AMENDS CODE SECTION: Amends Sections 44-8101 to 44-8107 of the Nebraska Senior Protection in Annuity Transactions Act.  Renames and changes the applicability of the Nebraska Senior Protection in Annuity Transaction Act.  

STATUS: Advanced to the general file with amendments.

SUMMARY: As noted in the Committee Statement for LB 120, references in the existing act to “seniors” are to be deleted thus affording the protections of the act to all consumers entering annuity transactions. The amendments to the bill would repeal provisions that are not in the National Association of Insurance Commissioners (NAIC) model. The committee amendments (AM47) would strike provisions which would have required the insurance producer, or insurer, if no producer was involved in the transaction, to make reasonable efforts to obtain information concerning financial status and other investment products owned by the senior consumer.

Like many states, the insurance department seeks to protect all annuity consumers, not only those ages 65 and older. If the bill is passed, as amended by the committee, the agent may not obtain a full view of the consumer’s financial picture. As the amendments state, the requirement that reasonable efforts shall be used to obtain information concerning financial status, including investment, a consumer may refuse. On the other hand, if there is no disclosure as to other investments or insurance products owned by the consumer, the agent is less likely to give advice for which the agent might not have appropriate licenses. Likewise situations involving twisting and churning may be less likely to arise. 

NEW JERSEY

BILL NUMBER: S949/A3040

AMENDS CODE SECTION: An act establishing the Interstate Insurance Product Regulation Pact and supplementing subtitle 3 of Title 17B of the New Jersey Statues.  This is a reintroduction of S1631 from the 2004-2005 session.

STATUS: Introduced in January 2006, passed by senate in June and received in assembly June 19, 2007, which referred to Assembly Financial Institutions and Insurance Committee.

SUMMARY: See ALABAMA Summary

See ALABAMA Summary. New Jersey is one of 11 states seeking to adopt the Interstate Insurance Product Regulation Pact this legislative session.

NEW JERSEY 

BILL NUMBER: AB 1157

AMENDS CODE SECTION: Supplements PL 1975, c.194 (C.30:4D-20 et seq.).  This is a reintroduction of S165/A3596 from the 2004-2005 session.

STATUS: Introduced pending technical review by Legislative Counsel

SUMMARY: The bill revises the income eligibility standards in the PAAD program to exclude from income that portion of an annuity payment that represents a return of initial investment.  The amounts that would be excluded as income under this bill are identical to the amounts of annuity payments that are excluded from gross income for federal income tax purposes. 

The Bill is an effort to assist seniors in meeting the eligibility requirements under the program and the Senior Gold Prescription Program.

NEW MEXICO

 BILL NUMBER: SB 14

AMENDS CODE SECTION: A bill to enact into law the Interstate Insurance Product Regulation Compact

STATUS: Pending, sent to Senate Committee on Judiciary on 1/17/07 and to the Senate Committee on Corporations and Transportation.  It came out of the Senate committee on corporations and Transportation on 3/2/07 with a Do Pass.

SUMMARY: See prior state discussions on Interstate Insurance Product Regulation compact.

The New Mexico Financial Impact report on SB 14 notes that if New Mexico does not pass this legislation, insurers will have to make separate filings in New Mexico, which some insurers may choose not to do. The consequence of this would be that the citizens of NM would not be afforded as broad of a range of insurance products that residents of other states may have.  Additionally, the report notes that failure of states to adopt this legislation may drive a federal initiative on the issue. New Mexico does not see a federal initiative as in the best interests of its citizens but does see the adoption of this legislation as a

solution which offers uniform standards, single point filing and speed to market. See ALABAMA commentary for additional information. 

NEW YORK  

BILL NUMBER: A03061

AMENDS CODE SECTION: Bill Amends S5205, CPLR; amd. Sections 282 & 283, adds Section 285

STATUS: Pending, referred to Judiciary on January 22, 2007

SUMMARY TAKEN FROM THE ASSEMBLY MEMO: The bill would amend section 283 of the debtor and creditor law to double the amount of aggregate individual bankruptcy exemption for certain annuities and personal property.  The bill would also permit debtors to choose either the current federal exemptions or the exemptions in NY law.

New York is typically not a debtor friendly state. Numerous attempts in the past have been made to increase the exemptions but have failed.  Because New York did not set an automatic adjustment in the dollar value of exempt property in 1982 or permit New York residents to choose between the federal and state exemptions, New York residents are not on the same footing as residents of many other states.  Whether or not the legislature of New York decides to allow for a choice between federal and state exemptions, it would seem fair to at least increase levels for changes in value due to inflation. 

NEW YORK

BILL NUMBER: SB2071

AMENDS CODE SECTION: A new bill that makes several amends .4223 of the insurance law

STATUS: Out of Senate committee on Insurance on March 12, 2007

SUMMARY TAKEN FROM STATE NET & STATEMENT IN SUPPORT OF INTRODUCER’S MEMO: Relates to annuity contracts with a fixed index account; provides that for contracts that provide a cash surrender benefit prior to the commencement of annuity payments, the death benefit attributable to any account, other than a fixed index account, shall not be less than the actual accumulation amount, and the death benefit attributable to a fixed index account shall not be less than the value of the fixed index account. This legislation establishes the most strenuous consumer protection requirements for fixed indexed annuity products of any state while also making revisions to New York’s standard non-forfeiture law for annuities to allow for the types of features to be offered that make this product attractive to consumers in the rest of the nation. The Bill prohibits the period under which the insurer may impose a surrender or withdrawal charge on the product from being longer than 10 years in duration and requires that such charges cannot be greater than 10%.

Very few fixed indexed annuities are offered in the state of New York in comparison to other states. This is a result, in part, to New York’s current non-forfeiture law which makes the index crediting method extremely difficult for companies. In the insurance industry New York is known for its strict provisions and rules governing all aspects of insurance. Insurance company’s wanting to transact business in New York, must have a New York domiciled insurance company. That is why insurance carriers offering New York products transact business through a separate entity. 

NORTH CAROLINA

BILL NUMBER: SB 736/HB 731

AMENDS CODE SECTION: A bill in part to protect consumers purchasing annuities.  If passed the first part of the bill relating to suitability in annuity transactions would amend Article 60 of Chapter 58 of the NC General Statutes by adding a new part.

STATUS: Introduced in March and referred to the Senate committee on Commerce, Small business and entrepreneurship on March 14, 2007.

SUMMARY: This bill is in part designed to provide protections for consumers of annuities, without regard to an age limitation. Insurance producers or insurers, where no producer is involved, is to make reasonable efforts to obtain information about the consumer’s financial status, tax status and investment objectives prior to the execution for a purchase or an exchange of an annuity.

This Bill is similar to other states adopted laws regarding suitability.

Interestingly enough, Section 58-60-170 (a) implies that the producer/insurer is to have reasonable grounds for believing the recommendation is suitable, based on consumer disclosed facts as to the consumers investments and other insurance products.  As noted above, similar requirements are being stricken via an amendment in the Nebraska Bill. 

NORTH DAKOTA  

BILL NUMBER: SB 2155

AMENDS CODE SECTION: A bill for an act to create and enter chapter 26.1-34.2 of the North Dakota Century Code relating to suitability in annuity transactions and to provide a penalty.

STATUS: Pending and sent to the house on January 19, 2007. The House received the bill on Jan 22 and it was introduced on Jan 31 and referred to the Industry, Business and Labor committee.  The Committee held a hearing on February 21.  The committee reported back with a due pass and it is placed on the calendar. Signed by House Speaker March 21, 2007.

SUMMARY: Similar to NAIC suitability language with certain variations.

Both fixed and variable annuities are covered under the provisions of this bill. As with similar laws, the insurance producer must have reasonable grounds to believe that the recommendation is suitable. Information to be collected, using reasonable efforts, before executing a transaction including the consumer’s financial status, consumer’s tax status, investment objectives and other reasonable information.  Insurers are to see that written procedures and systems are in place to comply with the requirements of the bill, and that periodic reviews are made. Records of information concerning the making of a recommendation and information used in making such must be maintained for 10 years.  

OHIO

Ohio Insurance regulation: OHIO 13128 (number not an official cite) - Insurance agency rule OAC 3901-6-13-14

STATUS: Effective March 1, 2007

SUMMARY TAKEN FROM STATE NET:  New rules regarding standards and procedures for recommendations to consumers that result in a transacting involving annuity products and disclosure of certain minimum information about annuity contracts to protect consumers.

Ohio Insurance regulation: OHIO 13053 (number not an official cite) - Insurance agency rule OAC 3901-6-05

STATUS: Effective March 1, 2007

SUMMARY TAKEN FROM STATE NET: Rescinds and establishes new rules regarding the replacement of life insurance and annuities.

Ohio has established annuity regulations which guide those transacting business in Ohio. Ohio has repeatedly ranked high as a source of life and health licensed agents and annuity premium. The Ohio regulations set forth the standards expected of carriers and producers dealing with Ohio residents.

OREGON 

BILL NUMBER: SB 257

AMENDS CODE SECTION: Amends ORS 59.015     

STATUS: Pending, Introduced to Senate Judiciary Committee on January 19, 2007. A house version of this bill was introduced on March 1 and sent to the House Committee on Judiciary on March 6. A work session was held March 27.

SUMMARY: If passed, a variable annuity would be added to the definition of security for purposes of Oregon Securities Law. 

Oregon is clarifying its intention to take an active roll in regulating securities. Oregon has previously been very active in insurance regulation and enforcement. It may be that Oregon’s Securities Division is preparing to proactively handle more security issues.   

RHODE ISLAND 

BILL NUMBER: HB 5739

AMENDS CODE SECTION: An act which would create new requirements and guidelines in the application process for mortgagors offering reverse loan mortgages.  The bill would amend Section 34-25.1-7 of the General laws in Chapter 34-25.1 entitled Reverse Mortgages.

STATUS: Introduced on February 28, 2007. Scheduled for consideration April 11, 2007.

SUMMARY: Among other items, the current law would be amended to delete the provision in 34-25.1-7(b) which states that a portion of the mortgage proceeds of a reverse mortgage may be used to purchase an immediate or deferred life contract.  A new provision states that,

(7) a Lender shall not require an applicant for a reverse mortgage to purchase an annuity as a condition of obtaining a reverse mortgage loan.  A reverse mortgage lender or a broker arranging a reverse mortgage loan shall not:

(i) offer an annuity to the borrower prior to the closing of a reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.

(ii) refer the borrower to anyone for the purchase of an annuity prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.

The bill also goes on to require specific counseling for prospective mortgagors.

This Bill would inhibit those producers who encourage seniors to take equity out of their home, only for the purpose of selling the senior an annuity. A similar Bill HB 5802 was introduced on March 1 and has been referred to the House Corporations Committee. While reverse mortgages have been viewed favorably by organizations such as AARP, reverse mortgage proceeds used to purchase an annuity are particular transactions which should be reviewed for suitability. The intention of the reverse mortgage is to get more income from the equity built up in the owner’s real estate. In many cases, a senior’s home is paid for; however, the senior does not have sufficient income to meet daily living expenses, especially health care costs. The purchase of an appropriate annuity is critical to meeting the owner’s objectives, even more so when income in needed immediately. Placing the home equity proceeds in an unsuitable annuity product may jeopardize the owner’s income situation further

RHODE ISLAND 

BILL NUMBER: SB 386

AMENDS CODE SECTION: Amending certain sections of General Laws in Chapter 27-2.4 entitled “producer Licensing Act.   

STATUS: Referred to Senate Corporation committee

SUMMARY LEGISLATIVE TEXT:  Deletes references to business entities for purposes of insurance producer licensing. Only individuals would be required to obtain insurance producer licenses. 

This Bill was introduced by Senator Blais, known as an advocate of improving the small business climate in the State of Rhode Island. Such a law would reduce the expense of licensing an agency to transact business in Rhode Island.

SOUTH CAROLINA

BILL NUMBER: SB 967

AMENDS CODE SECTION: Related to suitability in annuity transactions

STATUS: Died in committee

BILL NUMBER: SB 456

AMENDS CODE SECTION: Amends chapter 69, Title 38, by adding Article 7 regarding suitability

STATUS: Sent to the House Committee on Banking and Ins. on February 20, 2007

SUMMARY: Similar to other NAIC based legislation, this act is designed to provide standards and procedures for recommending annuity products to consumers.

Similar to other state suitability proposals.

Suitability in annuity transactions is a paramount concern for legislators and regulators. Suitability standards which center on a consumer’s financial status and tax status, including a consumer’s investment objectives, have been routinely added to state laws across the United States for the past 3-4 years. Producers notice that the forth category in the suitability analysis, which includes any other information which may be relevant to make a suitable recommendation, is a catch all category. Depending upon the consumer, questions which a producer may not ordinarily ask may be needed under particular circumstances. For carriers and producers, the challenge has become determining the amount of the consumer’s assets to appropriately recommend for the annuity. To say suitability has become a percentage is in error. Carriers can not set percentages which apply in all cases. Consumers, producers and carriers must work together to recognize what recommendation best fits the consumer objectives and needs. In some cases, it may require additional conversations and information to make a suitable recommendation.

SOUTH CAROLINA

BILL NUMBER: HB 3023

AMENDS CODE SECTION: Reintroduction of 2005-2006 legislative session HB 4994.  The bill would add Chapter 95 to Title 38 and would enact the Interstate Insurance Product Regulation Compact.

STATUS: Introduced on January 9, 2007 and referred to House committee on Labor, commerce and industry. 

See ALABAMA Comments.

TENNESSEE

BILL NUMBER: SB 2200/HB 2255

AMENDS CODE SECTION: Amends Tennessee Code Title 56 by deleting Chapter 8 part 1 in its entirety and by adding a new part 1

STATUS: Both Introduced on February 15, 2007. The senate version is assigned to the Gen. Sub of S. C, L&A Committee. The House version has been referred to Government Operations for review  and on 3/12/07 had a sponsor change

SUMMARY (as taken from Section 2 of the Bill): The purpose of the bill is to  regulate trade practices in the business of insurance in accordance with the intent of Congress, by defining, or providing for the determination of, all such practices in the state that constitute unfair methods of competition or unfair or deceptive acts or practices. 

This Bill is an extensive overhaul of Tennessee’s unfair trade practice rules. The Bill specifically lists conduct which will violate the code section(s), including misrepresentations and omissions. The Bill is lengthy and full of prohibited conduct.

TENNESSEE

BILL NUMBER: SB 2263

AMENDS CODE SECTION: Amends title 56 by adding Sections 2 and 3 as a new chapter

STATUS: Introduced February 15, 2007. Placed on calendar and Rule Committee for April 10.

SUMMARY: See ALABAMA Summary.

See ALABAMA Comments.

TEXAS

BILL NUMBER: SB 1685/HB 2761

AMENDS CODE SECTION: HB 2761 seeks to amend Title & subtitle A of the insurance code by adding Chapter 1115.  SB 1685 amends Chapter 1104 of the Insurance code by adding Subchapter C.

STATUS: Both are pending having been introduced in March 2007.  HB 2761 has gone to the House committee on Insurance. SB 1685 was referred to the State Affairs Committee.

SUMMARY: Both bills propose standards and procedures concerning annuity transactions with consumers.

Although both Bills are similar, there are subtle wording changes between the two Bills; most notable are the duties concerning determining suitability. For example, the House Bill requires reasonable effort to obtain such information regarding the consumer’s financial status, tax status, investment objectives, and other relevant information ‘from the consumer.’ Senate Bill 1685 states the producers must use reasonable efforts to obtain information without reference to the consumer, thus leaving the question of whether the duty to obtain such information extends beyond inquiries of the consumer to other sources of information. Both Bills include the

defense provisions under circumstances when a consumer fails to provide complete or accurate information. Both include the language prohibiting the statute from being used to create a private right of action; however, the placement of the language is different. SB 1685 states an effective date of Sep 01, 2007, while HB 2761 states an effective date of Jan1, 2008. The Bills also define ‘insurer’ differently. 

VIRGINIA

BILL NUMBER: 14 VAC 5-45

AMENDS CODE SECTION: Adding 14 VAC 5-45-10 through 40 rules governing suitability in Annuity Transactions

STATUS:  Effective Date April 1, 2007

SUMMARY (taken from 23 VA Regs. Reg. 1422): The amended regulations conform to the national association of Insurance commissioners “Suitability in Annuity Transactions Model Regulation.”  The regulations set forth standards and procedures for recommendations to consumers that result in a transaction involving annuity products, so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed.  The regulations apply to any recommendation to purchase or exchange an annuity made to a consumer by an insurance agent, or an insurer where no agent is involved, that results in the purchase or exchange recommended.

In its March 28 news release, the Virginia Corporation Commission indicates that the new rules will require all consumers to make a sound and reasonable judgment about their insurance needs and objectives. In this version of suitability ‘senior’ has been removed. This corresponds to the NAIC change in March 2006 removing ‘senior’ from the NAIC model regulation.

VIRGINIA

BILL NUMBER: 14 VAC 5-30

AMENDS CODE SECTION: Amending 14 VAC 5-30-10 through 14 VAC 5-30-40 and 14VAC 5-30-60 through 14 VAC 5-30-90; adding 14 VAC 5-30-51 and 14 VAC 5-30-55; repealing 14 VAC 5-30-50, 14 VAC 5-30-100 and Exhibit A

STATUS: Effective Date April 1, 2007

SUMMARY (taken from Virginia Register of Regulations: 23 VA Regs. Reg. 1408): The amendments add annuities to the products under the rules governing replacement and for consistency with the most recent NAIC “Life Insurance and Annuities Replacement Model Regulation.”  The procedural requirements for insurers and agents have been amended so that they are consistent with the NAIC model. The regulation modifies definitions, exemptions and forms.

The replacement of annuities is becoming a topic of more importance for regulators. While many states have used the NAIC

replacement model for several years,

replacement of business continues to be a consistence source of annuity premium.

Some annuities are ‘replaced’ when the contract is out of its surrender change

period. Some annuities are ‘replaced’ while in an existing surrender change period. In either situation, the purchaser must realize the existing surrender change period is most likely being replaced with a new surrender charge period. Depending upon the new product, the surrender charge period could be longer or shorter. In all cases, awareness of a change in surrender charges is critical.

As noted previously, replacements in California is an area of concern for the California Department of Insurance. California’s proposed replacement language will make a comparison analysis mandatory, rather than a requested option under the NAIC model. What constitutes a ‘replacement’ under existing law is an area of confusion for producers. While the rules and regulations for replacements are often interpreted as broad and encompassing, certain producers view replacement as a narrow set of circumstances. When an insurance carrier contacts a producer requesting additional replacement paperwork to accompany the application prior to issuance, producers sometimes are confused as to why the transaction is considered a replacement. After a closer review of the replacement statute language, the producer realizes the broad scope of replacement language.