December 1, 2005, Introduced by Reps. David Law and Hune and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
(MCL 500.100 to 500.8302) by adding chapter 41A.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
CHAPTER 41A
ANNUITY RECOMMENDATION TO SENIOR CONSUMER
Sec. 4151. As used in this chapter:
(a) "Annuity" means a fixed annuity or variable annuity that
is individually solicited, whether the product is classified as an
individual or group annuity.
(b) "Recommendation" means advice provided by an insurance
producer, or an insurer where no producer is involved, to an
individual senior consumer that results in a purchase or exchange
of an annuity in accordance with that advice.
(c) "Senior consumer" means a person 65 years of age or older.
For a joint purchase by more than 1 party, the purchaser will be
considered to be a senior consumer if any of the parties is age 65
or older.
Sec. 4153. (1) This chapter applies to any recommendation to
purchase or exchange an annuity made to a senior consumer by an
insurance producer, or an insurer where no producer is involved,
that results in the purchase or exchange recommended.
(2) This chapter does not apply to any recommendation to
purchase or exchange an annuity involving any of the following:
(a) Direct response solicitations where there is no
recommendation based on information collected from the senior
consumer.
(b) Contracts used to fund any of the following:
(i) An employee pension or welfare benefit plan that is covered
by the employee retirement and income security act, Public Law 93-
406.
(ii) A plan described by 26 USC 401(a), 26 USC 401(k), 26 USC
403(b), 26 USC 408(k), or 26 USC 408(p), if established or
maintained by an employer.
(iii) A government or church plan defined in 26 USC 414, a
government or church welfare benefit plan, or a deferred
compensation plan of a state or local government or tax exempt
organization under 26 USC 457.
(iv) A nonqualified deferred compensation arrangement
established or maintained by an employer or plan sponsor.
(v) Settlements of or assumptions of liabilities associated
with personal injury litigation or any dispute or claim resolution
process.
(vi) Formal prepaid funeral contracts.
Sec. 4155. (1) In recommending to a senior consumer the
purchase of an annuity or the exchange of an annuity that results
in another insurance transaction or series of insurance
transactions, the insurance producer, or the insurer where no
producer is involved, shall have reasonable grounds for believing
that the recommendation is suitable for the senior consumer on the
basis of the facts disclosed by the senior consumer as to his or
her investments and other insurance products and as to his or her
financial situation and needs.
(2) Prior to the execution of a purchase or exchange of an
annuity resulting from a recommendation, an insurance producer, or
an insurer where no producer is involved, shall make reasonable
efforts to obtain all of the following information:
(i) The senior consumer's financial status.
(ii) The senior consumer's tax status.
(iii) The senior consumer's investment objectives.
(iv) Such other information used or considered to be reasonable
by the insurance producer, or the insurer where no producer is
involved, in making recommendations to the senior consumer.
(3) Except as provided under subsection (4), neither an
insurance producer, nor an insurer where no producer is involved,
shall have any obligation to a senior consumer under subsection (1)
related to any recommendation if a consumer does any of the
following:
(a) Refuses to provide relevant information requested by the
insurer or insurance producer.
(b) Decides to enter into an insurance transaction that is not
based on a recommendation of the insurer or insurance producer.
(c) Fails to provide complete or accurate information.
(4) An insurer or insurance producer's recommendation subject
to subsection (1) shall be reasonable under all the circumstances
actually known to the insurer or insurance producer at the time of
the recommendation.
Sec. 4157. (1) An insurer either shall assure that a system to
supervise recommendations that is reasonably designed to achieve
compliance with this chapter is established and maintained by
complying with subsections (3) to (5), or shall establish and
maintain such a system, including, but not limited to, maintaining
written procedures and conducting periodic reviews of its records
that are reasonably designed to assist in detecting and preventing
violations of this chapter.
(2) A general agent and independent agency either shall adopt
a system established by an insurer to supervise recommendations of
its insurance producers that is reasonably designed to achieve
compliance with this chapter, or shall establish and maintain such
a system, including, but not limited to, maintaining written
procedures and conducting periodic reviews of records that are
reasonably designed to assist in detecting and preventing
violations of this chapter.
(3) An insurer may contract with a third party, including a
general agent or independent agency, to establish and maintain a
system of supervision as required under subsection (1) of insurance
producers under contract with or employed by the third party.
(4) An insurer shall make reasonable inquiry to assure that
the third party contracting under subsection (3) is performing the
functions required under subsection (1) 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 its
obligation to make reasonable inquiry by doing all of the
following:
(a) By annually obtaining a certification from a third party
senior manager that the third party contracting under subsection
(3) is performing the required functions. Only a person who is a
senior manager with responsibility for the delegated functions and
who has a reasonable basis for making the certification shall
provide a certification under this subdivision.
(b) By periodically selecting, based on reasonable selection
criteria, third parties contracting under subsection (3) for a
review to determine whether the third parties are performing the
required functions. The insurer shall perform those procedures to
conduct the review that are reasonable under the circumstances.
(5) An insurer that contracts with a third party pursuant to
subsection (3) and that complies with the requirements to supervise
under subsection (4) will be considered to have met its
responsibilities under subsection (1).
(6) An insurer, general agent, or independent agency is not
required under subsection (1) or (2) to do any of the following:
(a) Review, or provide for review of, all insurance producer
solicited transactions.
(b) Include in its system of supervision an insurance
producer's recommendations to senior consumers of products other
than the annuities offered by the insurer, general agent, or
independent agency.
(7) A general agent or independent agency contracting with an
insurer pursuant to subsection (3) shall promptly, when requested
by the insurer pursuant to subsection (4), give a certification as
described in subsection (4) or give a clear statement that it is
unable to meet the certification criteria.
Sec. 4159. The commissioner may do any of the following:
(a) Order an insurer to take reasonably appropriate corrective
action for any senior consumer harmed by the insurer's, or by its
insurance producer's, violation of this chapter.
(b) Order an insurance producer to take reasonably appropriate
corrective action for any senior consumer harmed by the insurance
producer's violation of this chapter.
(c) Order a general agent or independent agency that employs
or contracts with an insurance producer to sell or solicit the sale
of annuities to senior consumers, to take reasonably appropriate
corrective action for any senior consumer harmed by the insurance
producer's violation of this chapter.
Sec. 4161. The commissioner may reduce a penalty for a
violation of section 4155(1), (2), or (4) if corrective action for
the senior consumer was taken promptly after a violation was
discovered.
Sec. 4163. (1) An insurer, general agent, independent agency,
and insurance producer shall maintain or be able to make available
to the commissioner records of the information collected from the
senior consumer and other information used in making the
recommendations that were the basis for insurance transactions for
6 years after the insurance transaction is completed by the
insurer. An insurer is permitted, but is not required, to maintain
documentation on behalf of an insurance producer.
(2) Records required to be maintained by this chapter may be
maintained in paper, photographic, microprocess, magnetic,
mechanical, or electronic media or by any process that accurately
reproduces the actual document.
Sec. 4165. An insurer that complies with the national
association of securities dealers rules "NASD Manual, Conduct Rules
section 2310 (CCH, 1966)" pertaining to suitability satisfies this
chapter's requirements for the recommendation of variable
annuities. Any changes by the national association of securities
dealers to their conduct rules pertaining to suitability are not
effective in this state unless the commissioner finds the changes
further the protections afforded in this chapter and adopts the
changes by rule, order, or bulletin.