Regular Session 2021-2022 Senate Bill 0772 P.N. 1127

HOUSE AMENDED

PRIOR PRINTER'S NO. 912

PRINTER'S NO. 1127

THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

No.

772

Session of

2021

INTRODUCED BY DiSANTO, STREET, MENSCH, PITTMAN, KANE, YUDICHAK,

STEFANO AND BREWSTER, JUNE 16, 2021

AS REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF

REPRESENTATIVES, AS AMENDED, OCTOBER 4, 2021

AN ACT

Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An

act relating to insurance; amending, revising, and

consolidating the law providing for the incorporation of

insurance companies, and the regulation, supervision, and

protection of home and foreign insurance companies, Lloyds

associations, reciprocal and inter-insurance exchanges, and

fire insurance rating bureaus, and the regulation and

supervision of insurance carried by such companies,

associations, and exchanges, including insurance carried by

the State Workmen's Insurance Fund; providing penalties; and

repealing existing laws," in life insurance, further

providing for standard nonforfeiture law for individual

deferred annuities; and, in suitability of annuity

transactions, further providing for definitions, for

applicability and scope of article, for duties of insurers

and insurance producers, for insurance producer training, for

mitigation of responsibility, for recordkeeping and for

enforcement.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Sections 410C(d.1)(3)(C), 401-B, 402-B(a) and (b)

(2), 403-B, 403.1-B(b), 404-B heading and (a), 405-B(a) and 406-

B heading AND 403-B of the act of May 17, 1921 (P.L.682,

No.284), known as The Insurance Company Law of 1921, are amended

to read:

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Section 410C. Standard Nonforfeiture Law for Individual

Deferred Annuities.--* * *

(d.1) In the case of contracts issued on or after January 1,

2006, and in the case of any class of annuity contracts issued

before January 1, 2006, as to which the issuing company has

filed with the Insurance Department a notice of election of the

applicability of this section, the minimum values as specified

in subsections (e), (f), (g), (h) and (j) of any paid-up

annuity, cash surrender or death benefits available under an

annuity contract shall be based upon minimum nonforfeiture

amounts set forth in this section.

* * *

(3) The interest rate used in determining minimum

nonforfeiture amounts shall be an annual rate of interest

determined as the lesser of three per centum (3%) per annum and

the following, which shall be specified in the contract if the

interest rate will be reset:

* * *

fifteen hundredths of one per centum [(1%)] (.15%); and

* * *

Section 401-B. Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Annuity." An annuity that is an insurance product and is

individually solicited, whether the insurance product is

classified as an individual or group annuity.

"Cash compensation." A discount, concession, fee, service

fee, commission, sales charge, loan, override or cash benefit

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received by a producer in connection with the recommendation or

sale of an annuity from an insurer, intermediary or directly

from the consumer.

"Commissioner." The Insurance Commissioner of the

Commonwealth.

"Consumer profile information." Information that is

reasonably appropriate to determine whether a recommendation

addresses the consumer's financial situation, insurance needs

and financial objectives, including, at a minimum, the

following:

(1) Age.

(2) Annual income.

(3) Financial situation and needs, including debts and

other obligations.

(4) Financial experience.

(5) Insurance needs.

(6) Financial objectives.

(7) Intended use of the annuity.

(8) Financial time horizon.

(9) Existing assets or financial products, including

investment, annuity and insurance holdings.

(10) Liquidity needs.

(11) Liquid net worth.

(12) Risk tolerance, including willingness to accept

non-guaranteed elements in the annuity.

(13) Financial resources used to fund the annuity.

(14) Tax status.

"Continuing education credit." One continuing education

credit under section 608-A of the act of May 17, 1921 (P.L.789,

No.285), known as The Insurance Department Act of 1921.

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"Continuing education provider." An individual or entity

approved to offer continuing education courses under section

608-A of The Insurance Department Act of 1921.

"Department." The Insurance Department of the Commonwealth.

"Employee Retirement Income Security Act." The Employee

Retirement Income Security Act of 1974 (Public Law 93-406, 88

Stat. 829).

"FINRA." The Financial Industry Regulatory Authority or a

succeeding agency.

"General agent." An insurance producer that provides

supervision on behalf of an insurer to an insurer's sales force

in a particular geographic region or territory.

"Independent agency" (Deleted by amendment).

["Insurance producer." A person who sells, solicits or

negotiates contracts of insurance as defined in section 601-A of

The Insurance Department Act of 1921.]

"Insurer." A life insurance company licensed or required to

be licensed under section 202 or a fraternal benefit society as

defined in section 2403.

"Intermediary." An entity contracted directly with an

insurer or with another entity contracted with an insurer to

facilitate the sale of the insurer's annuities by producers.

"Internal Revenue Code." The Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 1 et seq.).

"Material conflict of interest." A financial interest of the

producer in the sale of an annuity that a reasonable person

would expect to influence the impartiality of a recommendation.

The term does not include cash compensation or non-cash

compensation.

"Non-cash compensation." A form of compensation that is not

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cash compensation, including health insurance, office rent,

office support and retirement benefits.

"Non-guaranteed elements." The premiums, credited interest

rates, including any bonus, benefits, values, dividends, non-

interest based credits, charges or elements of formulas used to

determine any of these, that are subject to company discretion

and are not guaranteed at issue. An element is considered non-

guaranteed if any of the underlying non-guaranteed elements are

used in its calculation.

"Producer." A person or entity required to be licensed under

the laws of this Commonwealth to sell, solicit or negotiate

insurance, including annuities. For purposes of this article,

"producer" includes an insurer where no producer is involved.

"Recommendation." [Advice provided by an insurance producer,

or an insurer where no producer is involved, to an individual

consumer that results in a purchase or exchange of an annuity in

accordance with that advice.] Advice provided by a producer to

an individual that was intended to result or does result in a

purchase, an exchange or a replacement of an annuity in

accordance with that advice. The term does not include general

communication to the public, generalized customer service

assistance or administrative support, general educational

information and tools, prospectuses or other product and sales

material.

"Replace" or "replacement." The purchase of a new [policy or

contract] annuity where it is known or should be known to the

proposing producer, or to the proposing insurer [if there is no

insurance producer] whether or not a producer is involved, that

by reason of the transaction, an existing annuity or other

insurance policy [or contract] has been or will be any of the

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following:

(1) lapsed, forfeited, surrendered or partially

surrendered or assigned to the replacing insurer or otherwise

terminated;

(2) converted to reduced paid-up insurance, continued as

extended term insurance or otherwise reduced in value by the

use of nonforfeiture benefits or other policy values;

(3) amended so as to effect a reduction in benefits or

in the term for which coverage would otherwise remain in

force or for which benefits would be paid;

(4) reissued with a reduction in cash value; or

(5) used in a financed purchase.

["Suitability information." Information relating to an

annuity that is appropriate to determine the suitability of a

recommendation, including:

(1) Age.

(2) Annual income.

(3) Financial situation and needs, including the

financial resources used for the funding of the annuity.

(4) Financial experience.

(5) Financial objectives.

(6) Intended use of the annuity.

(7) Financial time horizon.

(8) Existing assets, including investment and life

insurance holdings.

(9) Liquidity needs.

(10) Liquid net worth.

(11) Risk tolerance.

(12) Tax status.]

"SEC." The United States Securities and Exchange Commission.

20210SB0772PN1127 - 6 -

Section 402-B. Applicability and scope of article.

(a) General rule.--This article shall apply to any sale or

recommendation [to purchase or replace an annuity made to a

consumer by an insurance producer, or an insurer where no

producer is involved, that results in the purchase or

replacement recommended] of an annuity.

(b) Exclusions.--Unless otherwise specifically included,

this article shall not apply to [recommendations] transactions

involving the following:

* * *

(2) Contracts used to fund:

(i) An employee pension or welfare benefit plan that

is covered by the Employee Retirement Income Security Act

[of 1974 (Public Law 93-406, 88 Stat. 829)].

(ii) A plan described by sections 401(a) or (k),

403(b), 408(k) or (p) of the Internal Revenue Code [of

1986 (Public Law 99-514, 26 U.S.C. §§ 401(a) or (k),

403(b), 408(k) or (p)), when the plan, for purposes of

the Employee Retirement Income Security Act of 1974, is]

if established or maintained by an employer.

(iii) A governmental or church plan defined in

section 414 of the 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 under section 457 of the Internal

Revenue Code [of 1986].

(iv) A nonqualified deferred compensation

arrangement established or maintained by an employer or

plan sponsor.

[(v)] (3) Settlements of or assumptions of liabilities

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associated with personal injury litigation or any dispute or

claim resolution process.

[(vi)] (4) Formal prepaid funeral contracts.

Section 403-B. Duties of insurers and insurance producers.

[(a) General duties.--In making a recommendation to a

consumer for the purchase or replacement of an annuity that

results in another insurance transaction or series of insurance

transactions, the insurance producer, or the insurer where no

insurance producer is involved, shall have reasonable grounds

for believing that:

(1) 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 suitability information.

(2) The consumer has been reasonably informed of various

features of the annuity, including the potential surrender

period and surrender charge, potential tax penalty if the

consumer sells, replaces, surrenders or annuitizes the

annuity, mortality and expense fees, investment advisory

fees, potential charges for and features of riders,

limitations on interest returns, insurance and investment

components and market risk.

(3) The consumer would benefit from certain features of

the annuity, including tax-deferred growth, annuitization or

death or living benefit.

(4) The particular annuity as a whole, the underlying

subaccounts to which funds are allocated at the time of

purchase or replacement of the annuity, and riders and

similar product enhancements, if any, are suitable and, in

the case of a replacement, the transaction as a whole is

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suitable for the consumer based on the consumer's suitability

information.

(5) In the case of a replacement of an annuity, the

replacement is suitable and shall take into consideration

whether:

(i) The consumer will incur a surrender charge, be

subject to the commencement of a new surrender period,

lose existing benefits, including death, living or other

contractual benefits, or be subject to increased fees,

investment advisory fees or charges for riders and

similar product enhancements.

(ii) The consumer would benefit from product

enhancements and improvements.

(iii) The consumer has had another annuity

replacement, including a replacement within the preceding

36 months.

(b) Consumer information.--Prior to the execution of a

purchase or replacement of an annuity resulting from a

recommendation, an insurance producer, or an insurer where no

insurance producer is involved, shall make reasonable efforts to

obtain the consumer's suitability information.

(b.1) Reasonable basis.--Except as permitted under

subsection (c), an insurer may not issue an annuity recommended

to a consumer unless there is a reasonable basis to believe the

annuity is suitable based on the consumer's suitability

information.

(1) Except as provided under paragraph (2), neither an

insurance producer nor an insurer where no insurance producer

is involved shall have any obligation to a consumer under

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subsection (a) or (b.1) related to any annuity transaction

if:

(i) No recommendation is made.

(ii) A recommendation was made and was later found

to have been prepared based on materially inaccurate

information provided by the consumer.

(iii) A consumer refuses to provide relevant

suitability information and the annuity transaction is

not recommended.

(iv) A consumer decides to enter into an annuity

transaction that is not based on a recommendation of the

insurer or the insurance producer.

(2) An insurer's issuance of an annuity subject to

paragraph (1) shall be reasonable under all the circumstances

actually known to the insurer at the time the annuity is

issued.

(c.1) Documentation.--An insurance producer, or the

responsible insurer representative if no insurance producer is

involved, shall at the time of sale of an annuity:

(1) Make a record of each recommendation subject to

subsection (a).

(2) Obtain a customer-signed statement documenting a

customer's refusal to provide suitability information, if

any.

(3) Obtain a customer-signed statement acknowledging

that an annuity transaction is not recommended if the

customer decides to enter into an annuity transaction that is

not based on the insurance producer's or insurer's

recommendation.

(d) Supervision of recommendations.--

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(1) An insurer shall establish a supervision system that

is reasonably designed to achieve the insurer's and its

insurance producer's compliance with this article, including,

but not limited to, the following:

(i) The insurer shall maintain reasonable procedures

to inform its insurance producers of the requirements of

this article and shall incorporate the requirements of

this article into relevant insurance producer training

manuals.

(ii) The insurer shall establish standards for

insurance producer product training and maintain

reasonable procedures to require its insurance producers

to comply with the requirements of section 403.1-B.

(iii) The insurer shall provide product-specific

training and training materials that explain all material

features of its annuity products to its insurance

producers.

(iv) The insurer shall maintain procedures for

review of each recommendation before issuance of an

annuity that are designed to ensure that there is a

reasonable basis to determine that a recommendation is

suitable. The review procedures may apply a screening

system for the purpose of identifying selected

transactions for additional review and may be

accomplished electronically or through other means,

including, but not limited to, physical review. The

electronic or other system may be designed to require

additional review only for those transactions identified

for additional review by the selection criteria.

(v) The insurer shall maintain reasonable procedures

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to detect recommendations that are not suitable,

including, but not limited to, confirmation of consumer

suitability information, systematic customer surveys,

interviews, confirmation letters and programs of internal

monitoring. Nothing in this subparagraph shall prevent an

insurer from complying with this subparagraph by applying

sampling procedures or by confirming suitability

information after issuance or delivery of the annuity.

(vi) The insurer shall annually provide a report

detailing its supervision system to senior management,

including to the senior manager responsible for audit

functions. The report shall include a description of the

testing designed to determine the effectiveness of the

supervision system, the exceptions found and the

corrective action taken or recommended, if any.

(2) Nothing in this subsection shall restrict an insurer

from contracting for performance of a function, including

maintenance of procedures, required under paragraph (1). An

insurer is responsible for taking appropriate corrective

action and may be subject to sanctions and penalties under

section 406-B regardless of whether the insurer contracts for

performance of a function and regardless of the insurer's

compliance with paragraph (3).

(3) An insurer's supervision system under paragraph (1)

shall include supervision of contractual performance under

paragraph (2), including, but not limited to, the following:

(i) Monitoring and, as appropriate, conducting

audits to assure that the contracted function is properly

performed.

(ii) Annually obtaining a certification from a

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senior manager who has responsibility for the contracted

function that the senior manager has a reasonable basis

to represent, and does represent, that the function is

properly performed.

(4) An insurer is not required to include in its system

of supervision an insurance producer's recommendations to

consumers for products other than the annuities offered by

the insurer.

(d.1) Dissuasion.--An insurance producer may not dissuade,

or attempt to dissuade, a consumer from:

(1) Truthfully responding to an insurer's request for

confirmation of suitability information.

(2) Filing a complaint.

(3) Cooperating with the investigation of a complaint.

(e) Compliance with other rules.--Sales made in compliance

with FINRA requirements pertaining to suitability and

supervision of annuity transactions shall satisfy the

requirements under this section. This subsection applies to

FINRA broker-dealer sales of annuities if the suitability and

supervision is similar to those applied to variable annuity

sales. However, nothing in this subsection shall limit the

commissioner's ability to enforce or investigate the provisions

of this article. For this subsection to apply, an insurer shall:

(1) Monitor the FINRA member broker-dealer using

information collected in the normal course of an insurer's

business.

(2) Provide to the FINRA member broker-dealer

information and reports which are reasonably appropriate to

assist the FINRA member broker-dealer to maintain its

supervision system.

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(f) Internal audit and compliance procedures.--Nothing in

this article shall exempt an insurer from the internal audit and

compliance procedure requirements under section 405-A.]

(a) Best interest obligations.--A producer, when making a

recommendation of an annuity, shall act in the best interest of

the consumer under the circumstances known at the time the

recommendation is made, without placing the producer's or the

insurer's financial interest ahead of the consumer's interest. A

producer has acted in the best interest of the consumer if the

producer has satisfied the following obligations regarding care,

disclosure, conflict of interest and documentation:

(1) The following care obligations:

(i) The producer, in making a recommendation shall

exercise reasonable diligence, care and skill to:

(A) Know the consumer's financial situation,

insurance needs and financial objectives.

(B) Understand the available recommendation

options after making a reasonable inquiry into

options available to the producer.

recommended option effectively addresses the

consumer's financial situation, insurance needs and

financial objectives over the life of the product, as

evaluated in light of the consumer profile

information.

(D) Communicate the basis or bases of the

recommendation.

(ii) The requirements under subparagraph (i) include

making reasonable efforts to obtain consumer profile

information from the consumer prior to the recommendation

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of an annuity.

(iii) The requirements under subparagraph (i)

require a producer to consider the types of products the

producer is authorized and licensed to recommend or sell

that address the consumer's financial situation,

insurance needs and financial objectives. This does not

require analysis or consideration of any products outside

the authority and license of the producer or other

possible alternative products or strategies available in

the market at the time of the recommendation. Producers

shall be held to standards applicable to producers with

similar authority and licensure.

(iv) The requirements under this subsection do not

create a fiduciary obligation or relationship and only

create a regulatory obligation as established in this

article.

(v) The consumer profile information,

characteristics of the insurer, and product costs, rates,

benefits and features are those factors generally

relevant in making a determination whether an annuity

effectively addresses the consumer's financial situation,

insurance needs and financial objectives, but the level

of importance of each factor under the care obligation of

this paragraph may vary depending on the facts and

circumstances of a particular case. However, each factor

may not be considered in isolation.

(vi) The requirements under subparagraph (i) include

having a reasonable basis to believe the consumer would

benefit from certain features of the annuity, including

annuitization, death or living benefit or other

20210SB0772PN1127 - 15 -

insurance-related features.

(vii) The requirements under subparagraph (i) apply

to the particular annuity as a whole and the underlying

subaccounts to which funds are allocated at the time of

purchase or exchange of an annuity, and riders and

similar producer PRODUCT enhancements, if any.

(viii) The requirements under subparagraph (i) do

not mean the annuity with the lowest one-time or multiple

occurrence compensation structure shall necessarily be

recommended.

(ix) The requirements under subparagraph (i) do not

mean the producer has ongoing monitoring obligations

under the care obligation under this paragraph, although

the obligation may be separately owed under the terms of

a fiduciary, consulting, investment advising or financial

planning agreement between the consumer and the producer.

(x) In the case of an exchange or replacement of an

annuity, the producer shall consider the whole

transaction, which includes taking into consideration

whether:

(A) The consumer will incur a surrender charge,

be subject to the commencement of a new surrender

period, lose existing benefits, including death,

living or other contractual benefits, or be subject

to increased fees, investment advisory fees or

charges for riders and similar product enhancements.

(B) The replacing product would substantially

benefit the consumer in comparison to the replaced

product over the life of the product.

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exchange or replacement and, in particular, an

exchange or replacement within the preceding 60

months.

(xi) Nothing in this section should be construed to

require a producer to obtain any license other than a

producer license with the appropriate line of authority

to sell, solicit or negotiate insurance in this State,

including any securities license, in order to fulfill the

duties and obligations contained in this article;

provided the producer does not give advice or provide

services that are otherwise subject to securities laws or

engage in any other activity requiring other professional

licenses.

(2) The following disclosure obligations:

(i) Prior to the recommendation or sale of an

annuity, the producer shall prominently disclose to the

consumer on a form substantially similar to a model form

established by the department and following the NAIC

Model #275's Appendix A and including all the following:

(A) A description of the scope and terms of the

relationship with the consumer and the role of the

producer in the transaction.

(B) An affirmative statement on whether the

producer is licensed and authorized to sell the

following products:

(I) Fixed annuities.

(II) Fixed indexed annuities.

(III) Variable annuities.

(IV) Life insurance.

(V) Mutual funds.

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(VI) Stocks and bonds.

(VII) Certificates of deposit.

insurers the producer is authorized, contracted or

appointed, or otherwise able to sell insurance

products for, using the following descriptions:

(I) One insurer.

(II) From two or more insurers.

(III) From two or more insurers although

primarily contracted with one insurer.

(D) A description of the sources and types of

cash compensation and non-cash compensation to be

received by the producer, including whether the

producer is to be compensated for the sale of a

recommended annuity by commission as part of premium

or other remuneration received from the insurer,

intermediary or other producer or by fee as a result

of a contract for advice or consulting services.

(E) A notice of the consumer's right to request

additional information regarding cash compensation

described in subparagraph (ii).

(ii) Upon request of the consumer or the consumer's

designated representative, the producer shall disclose:

(A) A reasonable estimate of the amount of cash

compensation to be received by the producer, which

may be stated as a range of amounts or percentages.

(B) Whether the cash compensation is a one-time

or multiple occurrence amount and, if a multiple

occurrence amount, the frequency and amount of the

occurrence, which may be stated as a range of amounts

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or percentages.

(iii) Prior to or at the time of the recommendation

or sale of an annuity, the producer shall have a

reasonable basis to believe the consumer has been

informed of various features of the annuity, including

the potential surrender period and surrender charger,

potential tax penalty if the consumer sells, replaces,

surrenders or annuitizes the annuity, mortality and

expense fees, investment and advisory fees, any annual

fees, potential charges for and features of riders or

other options of the annuity, limitation on interest

returns, POTENTIAL CHANGES IN NON-GUARANTEED ELEMENTS OF

THE ANNUITY, insurance and investment components and

market risk.

(3) A producer shall identify and avoid or reasonably

manage and disclose material conflicts of interest, including

material conflicts of interest related to an ownership

interest.

(4) A producer shall at the time of recommendation or

sale:

(i) Make a written record of any recommendation and

the basis for the recommendation subject to this article.

(ii) Obtain a consumer signed statement on a form

substantially similar to a model form established by the

department and following the NAIC Model #275's Appendix

B, documenting:

(A) A customer's refusal to provide the consumer

profile information, if any.

(B) A customer's understanding of the

ramifications of not providing his or her consumer

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<--

profile information or providing insufficient

consumer profile information.

(iii) Obtain a consumer signed statement on a form

substantially similar to a model form established by the

department and following the NAIC Model #275's Appendix

C, acknowledging the annuity transaction is not

recommended if a customer decides to enter into an

annuity transaction that is not based on the producer's

recommendation.

(5) Any requirement applicable to a producer under this

subsection shall apply to every producer who has exercised

material control or influence in the making of a

recommendation and has received direct compensation as a

result of the recommendation or sale, regardless of whether

the producer has had any direct contact with the consumer.

Activities, including providing or delivering marketing or

educational materials, product wholesaling or other back

office product support and general supervision of a producer

do not, in and of themselves, constitute material control or

influence.

(b) Transactions not based on a recommendation.--The

following shall apply:

(1) Except as provided under paragraph (2), a producer

shall have no obligation to a consumer under subsection (a)

related to any annuity transaction if:

(i) No recommendation is made.

(ii) A recommendation was made and was later found

to have been prepared based on materially inaccurate

information provided by the consumer.

(iii) A consumer refuses to provide relevant

20210SB0772PN1127 - 20 -

consumer profile information and the annuity transaction

is not recommended.

(iv) A consumer decides to enter into an annuity

transaction that is not based on a recommendation of the

producer.

(2) An insurer's issuance of an annuity subject to

paragraph (1) shall be reasonable under all circumstances

actually known to the insurer at the time the annuity is

issued.

apply:

(1) Except as permitted under subsection (b), an insurer

may not issue an annuity recommended to a consumer unless

there is a reasonable basis to believe the annuity would

effectively address the particular consumer's financial

situation, insurance needs and financial objectives based on

the consumer's consumer profile information.

(2) An insurer shall establish and maintain a

supervision system that is reasonably designed to achieve the

insurer's and its producer's compliance with this article,

including the following:

(i) The insurer shall establish and maintain

reasonable procedures to inform its producers of the

requirements of this article and shall incorporate the

requirements of this article into relevant producer

training manuals.

(ii) The insurer shall establish and maintain

standards for producer product training and shall

establish and maintain reasonable procedures to require

its insurance producers to comply with the requirements

20210SB0772PN1127 - 21 -

of section 403.1-B.

(iii) The insurer shall provide product-specific

training and training materials that explain all material

features of its annuity products to its producers.

(iv) The insurer shall establish and maintain

procedures for the review of each recommendation before

issuance of an annuity that are designed to ensure there

is a reasonable basis to determine that the recommended

annuity would effectively address the particular

consumer's financial situation, insurance needs and

financial objectives. The review procedures may apply a

screening system for the purpose of identifying selected

transactions for additional review and may be

accomplished electronically or through other means,

including physical review. The electronic or other system

may be designed to require additional review only for

those transactions identified for additional review by

the selection criteria.

(v) The insurer shall establish and maintain

reasonable procedures to detect recommendations that are

not in compliance with subsections (a), (b), (d) and (e).

This may include confirmation of consumer's consumer

profile information, systematic customer surveys,

producer and consumer interviews, confirmation letters,

producer statements or attestations and programs of

internal monitoring. Nothing in this subparagraph shall

prevent an insurer from complying with this subparagraph

by applying sampling procedures or by confirming the

consumer profile suitability information or other

required information under this section after issuance or

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delivery of the annuity.

(vi) The insurer shall establish and maintain

reasonable procedures to assess, prior to or upon

issuance or delivery of an annuity, whether a producer

has provided to the consumer the information required to

be provided under this section.

(vii) The insurer shall establish and maintain

reasonable procedures to identify and address suspicious

consumer refusals to provide consumer profile

information.

(viii) The insurer shall establish and maintain

reasonable procedures to identify and eliminate any sales

contests, sales quotas, bonuses and non-cash compensation

that are based on the sales of specific annuities within

a limited period of time. The requirements of this

subparagraph are not intended to prohibit the receipt of

health insurance, office rent, office support, retirement

benefits or other employee benefits by employees as long

as those benefits are not based upon the volume of sales

of a specific annuity within a limited period of time.

(ix) The insurer shall annually provide a written

report detailing its supervision system to senior

management, including to the senior manager responsible

for audit functions. The report shall include a

description of the testing designed to determine the

effectiveness of the supervision system, the exceptions

found and corrective action taken or recommended, if any.

(3) Nothing in this subsection shall restrict an insurer

from contracting for performance of a function, including

maintenance of procedures, required under this subsection. An

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insurer is responsible for taking appropriate corrective

action and may be subject to sanctions and penalties under

section 406-B regardless of whether the insurer contracts for

performance of a function and regardless of the insurer's

compliance with paragraph (4).

(4) An insurer's supervision system under this

subsection shall include supervision of contractual

performance under this subsection. This includes the

following:

(i) Monitoring and, as appropriate, conducting

audits to assure that the contracted function is properly

performed.

(ii) Annually obtaining a certification from a

senior manager who has responsibility for the contracted

function that the senior manager has a reasonable basis

to represent, and does represent, that the function is

properly performed.

(5) An insurer is not required to include in its system

of supervision:

(i) a producer's recommendations to consumers for

products other than the annuities offered by the insurer;

(ii) include consideration of or comparison to

options available to the producer or compensation

relating to those options other than annuities or other

products offered by the insurer.

(d) Prohibited practices.--A producer or an insurer shall

not dissuade, or attempt to dissuade, a consumer from:

(1) Truthfully responding to an insurer's request for

confirmation of the consumer profile information.

20210SB0772PN1127 - 24 -

(2) Filing a complaint.

(3) Cooperating with the investigation of a complaint.

(e) Safe Harbor.--The following shall apply:

(1) All recommendations and sales made in compliance

with comparable standards shall satisfy the requirements

under this article. This subsection applies to

recommendations and sales of annuities made by financial

professionals in compliance with business rules, controls and

procedures that satisfy a comparable standard even if the

standard would not otherwise apply to the product or

recommendation at issue. However, nothing in this subsection

shall limit the commissioner's ability to investigate and

enforce the provisions of this article.

(2) The insurer may base its analysis on information

received from either the financial professional or the entity

supervising the financial professional.

(3) For paragraph (1) to apply, an insurer shall:

(i) Monitor the relevant conduct of the financial

professional seeking to rely on paragraph (1) or the

entity responsible for supervising the financial

professional, including the financial professional's

broker-dealer or investment adviser registered under

Federal securities laws using information collected in

the normal course of an insurer's business.

(ii) Provide to the entity responsible for

supervising the financial professional seeking to rely on

paragraph (1), including the financial professional's

broker-dealer or investment advisor registered under

Federal securities laws, information and reports which

are reasonably appropriate to assist the entity to

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maintain its supervision system.

(4) Nothing in this article shall exempt an insurer from

the internal audit and compliance procedure requirements

under section 405-A.

(5) For purposes of this subsection, "financial

professional" means a producer that is regulated and acting

as any of the following:

(i) A broker-dealer registered under Federal

securities laws or a registered representative of a

broker-dealer.

(ii) An investment adviser registered under Federal

securities laws or an investment adviser representative

associated with the Federal registered investment

adviser.

(iii) A plan fiduciary under section 3(21) of the

Employee Retirement Income Security Act or fiduciary

under section 4975(e)(3) of the Internal Revenue Code, or

any amendments or successor statutes thereto.

(6) For purposes of this subsection, "comparable

standards" means:

(i) With respect to broker-dealers and registered

representatives of broker-dealers, applicable SEC and

FINRA rules pertaining to best interest obligations and

supervision of annuity recommendations and sales,

including regulation best interest and any amendments or

successor regulations thereto.

(ii) With respect to investment advisers registered

under Federal securities laws or investment adviser

representatives, the fiduciary duties and all other

requirements imposed on the investment advisers or

20210SB0772PN1127 - 26 -

investment adviser representatives by contract or under

the Investment Advisers Act of 1940, including the Form

ADV and interpretations.

(iii) With respect to plan fiduciaries or

fiduciaries, the duties, obligations, prohibitions and

all other requirements attendant to such status under the

Employee Retirement Income Security Act or the Internal

Revenue Code and any amendments or successor statutes

thereto.

SECTION 2. SECTION 403.1-B(A)(6) AND (B) OF THE ACT ARE

AMENDED AND THE SECTION IS AMENDED BY ADDING A SUBSECTION TO

READ:

Section 403.1-B. Insurance producer training.

* * * (A) CONTINUING EDUCATION CREDITS.--AN INSURANCE

PRODUCER WHO HAS THE AUTHORITY TO SELL ANNUITIES SHALL COMPLETE

AT LEAST FOUR CONTINUING EDUCATION CREDITS IN AN ANNUITY

TRAINING COURSE OR COURSES COVERING THE FOLLOWING TOPICS:

* * *

(6) APPROPRIATE STANDARDS OF CONDUCT, SALES PRACTICES,

REPLACEMENT AND DISCLOSURE REQUIREMENTS.

(b) Compliance.--[The continuing education credit

requirement under subsection (a) shall be met on or before the

end of the insurance producer's next complete license period

occurring after the effective date of this section. For

individuals licensed on or after the effective date of this

section, the requirement shall be met on or before the end of

the insurance producer's first license period.] The following

shall apply:

(1) The continuing education requirement under

subsection (a) shall be met on or before the end of the

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insurance producer's next complete license period occurring

after the effective date of this section. For individuals

licensed on or after the effective date of this section, the

requirement shall be met on or before the end of the

insurance producer's first license period.

(2) An insurance producer who has met the continuing

education credit requirement under subsection (a) prior to

the effective date of this subsection shall, within six

months after the effective date of this subsection, complete

either:

(i) At least four continuing education credits in an

annuity training course or courses in compliance with

this section.

(ii) An additional one-time one credit training

course approved by the department.

* * *

(G.1) SATISFACTION OF TRAINING REQUIREMENTS.--THE

SATISFACTION OF THE COMPONENTS OF THE TRAINING REQUIREMENTS OF

ANY COURSE OR COURSES WITH COMPONENTS SUBSTANTIALLY SIMILAR TO

THE PROVISIONS OF THIS SECTION SHALL BE DEEMED TO SATISFY THE

TRAINING REQUIREMENTS OF THIS SUBSECTION IN THIS COMMONWEALTH.

* * *

SECTION 3. SECTIONS 404-B HEADING AND (A), 405-B(A) AND 406-

B HEADING OF THE ACT ARE AMENDED TO READ:

Section 404-B. [Mitigation of responsibility] Compliance

mitigation.

(a) Corrective actions.--An insurer is responsible for

compliance with this article. If a violation occurs, either

because of the action or inaction of an insurer or its

[insurance] producer, the commissioner may order:

20210SB0772PN1127 - 28 -

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(1) An insurer to take reasonably appropriate corrective

action for any consumer harmed by [the insurer's or by its

insurance producer's violation of this article.] a failure to

comply with this article by the insurer, an entity contracted

to perform the insurer's supervisory duties or by the

producer.

(3) An exclusive general agent or the [insurance]

producer to take reasonably appropriate corrective action for

any consumer harmed by the licensee's violation of this

article.

(4) Penalties and remedies under section 406-B.

* * *

Section 405-B. Recordkeeping.

(a) General rule.--An insurer, exclusive general agent and

[insurance] producer shall maintain or be able to make available

to the commissioner records of the information collected from

the consumer, disclosures made to the consumer, including

summaries of oral disclosures, and other information used in

making the recommendations that were the basis for the insurance

transactions for five years after the insurance transaction is

completed by the insurer. An insurer is permitted but shall not

be required to maintain documentation on behalf of a[n

insurance] [AN INSURANCE] A producer.

* * *

Section 406-B. [Enforcement] Penalties and enforcement.

* * *

SECTION 4. THE AMENDMENT OF SECTION 410C(D.1)(3)(C) OF THE

ACT SHALL APPLY ONLY TO ANNUITY CONTRACTS ISSUED ON OR AFTER THE

EFFECTIVE DATE OF THIS SECTION.

Section 2 5. This act shall take effect in 180 days.

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