Texas 2021 - 87th Regular

Texas House Bill HB1777 Compare Versions

Version 1 (Old)

Version 2 (New)

Old	New		Differences
1		-	H.B. No. 1777
	1	+	By: Oliverson (Senate Sponsor - Hancock) H.B. No. 1777
	2	+	(In the Senate - Received from the House May 3, 2021;
	3	+	May 4, 2021, read first time and referred to Committee on Business &
	4	+	Commerce; May 13, 2021, reported favorably by the following vote:
	5	+	Yeas 8, Nays 0; May 13, 2021, sent to printer.)
	6	+	Click here to see the committee vote
2	7
3	8
	9	+	A BILL TO BE ENTITLED
4	10		AN ACT
5	11		relating to disclosures and standards required for certain annuity
6	12		transactions and benefits under certain annuity contracts.
7	13		BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
8	14		SECTION 1. Section 1107.055, Insurance Code, is amended to
9	15		read as follows:
10	16		Sec. 1107.055. INTEREST RATE. The interest rate used in
11	17		determining minimum nonforfeiture amounts shall be an annual rate
12	18		of interest determined as the lesser of three percent per annum and
13	19		the following, which must be specified in the contract if the
14	20		interest rate will be redetermined:
15	21		(1) the five-year Constant Maturity Treasury Rate
16	22		reported by the Federal Reserve as of a date, or average over a
17	23		period, rounded to the nearest 1/20th of one percent, specified in
18	24		the contract no longer than 15 months prior to the contract issue
19	25		date or redetermination date under Subdivision (4);
20	26		(2) reduced by 125 basis points;
21	27		(3) where the resulting interest rate is not less than
22	28		0.15 [one] percent; and
23	29		(4) the interest rate shall apply for an initial
24	30		period and may be redetermined for additional periods. The
25	31		redetermination date, basis, and period, if any, shall be stated in
26	32		the contract. As used in this section, basis is the date, or
27	33		average over a specified period, which produces the five-year
28	34		Constant Maturity Treasury Rate to be used at each redetermination
29	35		date.
30	36		SECTION 2. Section 1115.001, Insurance Code, is amended to
31	37		read as follows:
32	38		Sec. 1115.001. PURPOSE. The purpose of this chapter is to
33	39		require an agent to act in the best interest of the consumer when
34	40		making a recommendation of an [establish standards and procedures
35	41		regarding recommendations made to a consumer that result in a
36	42		transaction involving] annuity [products,] and to require insurers
37	43		to establish and maintain a system to supervise those
38	44		recommendations so [, to ensure] that the insurance needs and
39	45		financial objectives of the consumer as of the time of the
40	46		transaction are effectively [appropriately] addressed.
41	47		SECTION 3. Section 1115.002, Insurance Code, is amended by
42	48		amending Subdivisions (2-a), (3), (4), and (5) and adding
43	49		Subdivisions (2-b), (2-c), (3-a), (3-b), (3-c), and (3-d) to read
44	50		as follows:
45	51		(2-a) "Cash compensation" means a discount,
46	52		concession, fee, service fee, commission, sales charge, loan,
47	53		override, or cash benefit received by an agent from an insurer,
48	54		intermediary, or consumer in connection with the recommendation or
49	55		sale of an annuity.
50	56		(2-b) "Consumer profile information" means
51	57		information that is reasonably appropriate to determine whether a
52	58		recommendation addresses the consumer's financial situation,
53	59		insurance needs, and financial objectives, including the
54	60		following:
55	61		(A) age;
56	62		(B) annual income;
57	63		(C) existing assets and financial products,
58	64		including investment, annuity, and insurance holdings;
59	65		(D) financial situation and needs, including
60	66		debts and other obligations;
61	67		(E) financial experience;
62	68		(F) financial objectives;
63	69		(G) financial resources used to fund the annuity;
64	70		(H) financial time horizon;
65	71		(I) insurance needs;
66	72		(J) intended use of the annuity;
67	73		(K) liquid net worth;
68	74		(L) liquidity needs;
69	75		(M) risk tolerance, including willingness to
70	76		accept non-guaranteed elements in the annuity; and
71	77		(N) tax status.
72	78		(2-c) "Continuing education provider" means a person
73	79		authorized to offer continuing education courses under Chapter
74	80		4004.
75	81		(3) "Insurer" means a company authorized to engage in
76	82		the business of life insurance and annuities in this state, and
77	83		includes a fraternal benefit society operating under Chapter 885.
78	84		(3-a) "Intermediary" means an entity contracted
79	85		directly with an insurer or with another entity contracted with an
80	86		insurer to facilitate the sale of the insurer's annuities by
81	87		agents.
82	88		(3-b) "Material conflict of interest" means a
83	89		financial interest of an agent in the sale of an annuity that a
84	90		reasonable person would expect to influence the impartiality of a
85	91		recommendation. The term does not include cash or noncash
86	92		compensation paid to an agent.
87	93		(3-c) "Noncash compensation" means any form of
88	94		compensation that is not cash compensation, including health
89	95		insurance, office rent, office support, and retirement benefits.
90	96		(3-d) "Non-guaranteed element" means a premium,
91	97		credited interest rate, including any bonus, benefit, value,
92	98		dividend, non-interest based credit, or charge, or an element of a
93	99		formula used to determine any of those elements, that is determined
94	100		at the discretion of the insurer and is not guaranteed at issue. The
95	101		term includes an element that is calculated using an element that is
96	102		determined at the discretion of the insurer and is not guaranteed at
97	103		issue.
98	104		(4) "Recommendation" means advice provided by an
99	105		agent, or an insurer if no agent is involved, to an individual
100	106		consumer that is intended to result or does result [results] in a
101	107		purchase, exchange, or replacement of an annuity made in accordance
102	108		with that advice. The term does not include a general communication
103	109		to the public, any generalized customer service assistance or
104	110		administrative support, any general educational information or
105	111		tools, a prospectus, or any other product or sales material.
106	112		(5) "Replacement" means a transaction in which a new
107	113		annuity [policy or contract] is to be purchased and the proposing
108	114		agent, or the proposing insurer regardless of whether [if] an agent
109	115		is [not] involved, knows or should know that, by reason of the
110	116		transaction, an existing annuity or other insurance policy [or
111	117		contract] has been or is to be:
112	118		(A) lapsed, forfeited, surrendered or partially
113	119		surrendered, assigned to the replacing insurer, or otherwise
114	120		terminated;
115	121		(B) converted to reduced paid-up insurance,
116	122		continued as extended term insurance, or otherwise reduced in value
117	123		by the use of nonforfeiture benefits or other policy values;
118	124		(C) amended so as to effect either a reduction in
119	125		benefits or in the term for which coverage would otherwise remain in
120	126		force or for which benefits would be paid;
121	127		(D) reissued with any reduction in cash value; or
122	128		(E) used in a financed purchase.
123	129		SECTION 4. Section 1115.003, Insurance Code, is amended to
124	130		read as follows:
125	131		Sec. 1115.003. APPLICABILITY; EXEMPTIONS. (a) This
126	132		chapter applies to any sale of [recommendation to purchase,
127	133		replace, or exchange] an annuity [that:
128	134		[(1) is made to a consumer by an agent, or an insurer
129	135		if an agent is not involved; and
130	136		[(2) results in the recommended purchase,
131	137		replacement, or exchange].
132	138		(b) Unless otherwise specifically included, this chapter
133	139		does not apply to transactions involving:
134	140		(1) direct response solicitations if there is no
135	141		recommendation based on information collected from the consumer
136	142		under this chapter; [or]
137	143		(2) contracts used to fund:
138	144		(A) an employee pension benefit plan or employee
139	145		welfare benefit plan covered by the Employee Retirement Income
140	146		Security Act of 1974 (29 U.S.C. Section 1001 et seq.);
141	147		(B) a plan described by Section 401(a), 401(k),
142	148		403(b), 408(k), or 408(p), Internal Revenue Code of 1986, if
143	149		established or maintained by an employer;
144	150		(C) a government or church plan, as defined by
145	151		Section 414, Internal Revenue Code of 1986, a government or church
146	152		welfare benefit plan, or a deferred compensation plan of a state or
147	153		local government or tax exempt organization described under Section
148	154		457, Internal Revenue Code of 1986; or
149	155		(D) a nonqualified deferred compensation
150	156		arrangement established or maintained by an employer or plan
151	157		sponsor;
152	158		(3) [(E)] settlements of or assumptions of
153	159		liabilities associated with personal injury litigation or any
154	160		dispute or claim resolution process; or
155	161		(4) [(F)] prepaid funeral benefits contracts, as
156	162		defined by Chapter 154, Finance Code.
157	163		SECTION 5. Section 1115.004, Insurance Code, is amended to
158	164		read as follows:
159	165		Sec. 1115.004. NO CAUSE OF ACTION CREATED. This chapter may
160	166		not be construed to create or imply a private cause of action
161	167		against an agent or insurer or to subject an agent or insurer to
162	168		civil liability for a violation of:
163	169		(1) this chapter or a rule adopted under this chapter;
164	170		or
165	171		(2) a standard governing the conduct of a fiduciary or
166	172		a fiduciary relationship.
167	173		SECTION 6. Subchapter B, Chapter 1115, Insurance Code, is
168	174		amended by adding Sections 1115.0505, 1115.0506, 1115.0507, and
169	175		1115.0508 to read as follows:
170	176		Sec. 1115.0505. AGENTS EXERCISING MATERIAL CONTROL. (a)
171	177		This subchapter applies to each agent who:
172	178		(1) exercises material control or influence in making
173	179		a recommendation or sale; and
174	180		(2) receives direct compensation as a result of the
175	181		recommendation or sale, regardless of whether the agent has direct
176	182		contact with the consumer.
177	183		(b) Activities that do not constitute material control or
178	184		influence include providing or delivering marketing or educational
179	185		materials, product wholesaling or other back office product
180	186		support, general supervision of an agent, and similar activities.
181	187		Sec. 1115.0506. TRANSACTIONS NOT BASED ON RECOMMENDATION;
182	188		CERTAIN EXEMPTIONS FROM SUBCHAPTER. An agent does not have an
183	189		obligation to a consumer under Section 1115.0513 if:
184	190		(1) the agent does not make a recommendation;
185	191		(2) the agent makes a recommendation based on
186	192		materially inaccurate information provided by the consumer;
187	193		(3) the consumer refuses to provide consumer profile
188	194		information; or
189	195		(4) the consumer enters into an annuity transaction
190	196		that is not based on the recommendation from the agent or the
191	197		insurer.
192	198		Sec. 1115.0507. INSURER OBLIGATIONS. (a) Notwithstanding
193	199		Section 1115.0506, an insurer's issuance of an annuity must be
194	200		reasonable under the circumstances known to the insurer at the time
195	201		the annuity is issued.
196	202		(b) If there is no agent involved in an annuity transaction,
197	203		the obligations described in this subchapter apply to the insurer
198	204		that recommends or sells the annuity in the same way those
199	205		obligations would apply to an agent.
200	206		Sec. 1115.0508. ADDITIONAL LICENSURE NOT REQUIRED. Nothing
201	207		in this subchapter may be construed to require an agent to obtain a
202	208		license other than the license described by Chapter 4054.
203	209		SECTION 7. The heading to Section 1115.051, Insurance Code,
204	210		is amended to read as follows:
205	211		Sec. 1115.051. BEST-INTEREST OBLIGATION [SUITABILITY OF
206	212		ANNUITY PRODUCT REQUIRED].
207	213		SECTION 8. Sections 1115.051(a) and (b), Insurance Code,
208	214		are amended to read as follows:
209	215		(a) When making a recommendation of an annuity, an agent
210	216		shall act in the best interest of the consumer under the
211	217		circumstances known to the agent at the time the recommendation is
212	218		made, without placing the agent's or the insurer's financial
213	219		interest ahead of the consumer's interest [In recommending to a
214	220		consumer the purchase of an annuity or the exchange of an annuity
215	221		that results in another insurance transaction or series of
216	222		insurance transactions, the agent, or the insurer if an agent is not
217	223		involved, must have a reasonable basis to believe that:
218	224		[(1) the recommendation is suitable for the consumer
219	225		on the basis of the facts disclosed by the consumer as to the
220	226		consumer's investments and other insurance products and as to the
221	227		consumer's financial situation and needs, including the consumer's
222	228		suitability information;
223	229		[(2) the consumer has been reasonably informed of
224	230		various features of the annuity, such as the potential surrender
225	231		period and the surrender charge, any potential tax penalty if the
226	232		consumer sells, exchanges, surrenders, or annuitizes the annuity,
227	233		mortality and expense fees, investment advisory fees, potential
228	234		charges for and features of riders, limitations on interest
229	235		returns, insurance and investment components, and market risk;
230	236		[(3) the consumer would benefit from certain features
231	237		of the annuity, such as tax-deferred growth, annuitization, or a
232	238		death or living benefit;
233	239		[(4) the particular annuity as a whole, the underlying
234	240		subaccounts to which funds are allocated at the time of the purchase
235	241		or exchange of the annuity, and any riders or similar product
236	242		enhancements are suitable, and, in the case of an exchange or
237	243		replacement, the transaction as a whole is suitable, for the
238	244		particular consumer based on the consumer's suitability
239	245		information; and
240	246		[(5) in the case of an exchange or replacement of an
241	247		annuity, the exchange or replacement is suitable, including taking
242	248		into consideration whether the consumer:
243	249		[(A) will incur a surrender charge, be subject to
244	250		the commencement of a new surrender period, lose existing benefits
245	251		such as death, living, or other contractual benefits, or be subject
246	252		to increased fees, investment advisory fees, or charges for riders
247	253		or similar product enhancements;
248	254		[(B) would benefit from product enhancements and
249	255		improvements; and
250	256		[(C) has had another annuity exchange or
251	257		replacement, and in particular, an exchange or replacement in the
252	258		preceding 36 months].
253	259		(b) An agent is presumed to act in the best interest of the
254	260		consumer if the agent satisfies the care, disclosure, conflict of
255	261		interest, and documentation obligations described by this
256	262		subchapter [Before the execution of a purchase, exchange, or
257	263		replacement of an annuity resulting from a recommendation, an
258	264		agent, or an insurer if an agent is not involved, shall make
259	265		reasonable efforts to obtain the consumer's suitability
260	266		information].
261	267		SECTION 9. Subchapter B, Chapter 1115, Insurance Code, is
262	268		amended by adding Sections 1115.0513, 1115.0514, 1115.0515, and
263	269		1115.0516 to read as follows:
264	270		Sec. 1115.0513. CARE OBLIGATION. (a) In making a
265	271		recommendation, an agent shall exercise reasonable diligence,
266	272		care, and skill to:
267	273		(1) obtain consumer profile information from the
268	274		consumer before making the recommendation of an annuity;
269	275		(2) know the consumer's financial situation, insurance
270	276		needs, and financial objectives;
271	277		(3) understand the available recommendation options
272	278		available to the agent;
273	279		(4) consider the types of products the agent is
274	280		authorized and licensed to recommend or sell that address the
275	281		consumer's financial situation, insurance needs, and financial
276	282		objectives;
277	283		(5) have a reasonable basis to believe the
278	284		recommendation addresses the consumer's financial situation,
279	285		insurance needs, and financial objectives over the life of the
280	286		product, in light of the consumer profile information;
281	287		(6) have a reasonable basis to believe the consumer
282	288		would benefit from certain features of the annuity, such as
283	289		annuitization, a death or living benefit, or other
284	290		insurance-related feature; and
285	291		(7) communicate the basis of the recommendation.
286	292		(b) Subsection (a) does not require:
287	293		(1) analysis or consideration of a product outside the
288	294		authority and license of the agent;
289	295		(2) analysis or consideration of a product or strategy
290	296		that is an alternative to an annuity;
291	297		(3) recommendation of the annuity with the lowest
292	298		one-time or multiple occurrence compensation structure; or
293	299		(4) ongoing monitoring of the consumer's financial
294	300		situation.
295	301		(c) The agent shall consider consumer profile information,
296	302		characteristics of the insurer, and product costs, rates, benefits,
297	303		and features in determining whether an annuity effectively
298	304		addresses the consumer's financial situation, insurance needs, and
299	305		financial objectives. The agent may place varying levels of
300	306		importance on each of those factors based on the facts and
301	307		circumstances of a particular case, but may not consider one factor
302	308		in isolation.
303	309		(d) In the case of an exchange or replacement of an annuity,
304	310		the agent shall consider the whole transaction, including whether:
305	311		(1) the consumer will incur a surrender charge, be
306	312		subjected to the commencement of a new surrender period, lose
307	313		existing benefits such as death, living, or other contractual
308	314		benefits, or be subject to increased fees, investment advisory
309	315		fees, or charges for riders and similar product enhancements;
310	316		(2) the replacing product would substantially benefit
311	317		the consumer in comparison to the replaced product over the life of
312	318		the product; and
313	319		(3) the consumer has had an annuity exchange or
314	320		replacement in the preceding 60 months.
315	321		(e) This section applies to an annuity as a whole,
316	322		including:
317	323		(1) underlying subaccounts to which money is allocated
318	324		at the time of the purchase or exchange of an annuity; and
319	325		(2) any riders and similar product enhancements.
320	326		(f) An agent shall be held to standards applicable to an
321	327		agent with similar authority and licensure with respect to the
322	328		requirements of this section. This section does not create a
323	329		fiduciary obligation or relationship and only creates a regulatory
324	330		obligation. This section does not affect any ongoing monitoring
325	331		obligation an agent may have under a fiduciary, consulting,
326	332		investment advising, or financial planning agreement between the
327	333		consumer and the agent.
328	334		Sec. 1115.0514. DISCLOSURE OBLIGATION. (a) Before the
329	335		recommendation or sale of an annuity, an agent shall provide a
330	336		disclosure to the consumer on a form prescribed by the commissioner
331	337		by rule.
332	338		(b) The prescribed form must be substantially similar to the
333	339		National Association of Insurance Commissioners Insurance Agent
334	340		Disclosure for Annuities form. The form must include:
335	341		(1) a description of the scope and terms of the agent's
336	342		relationship with the consumer and role in the transaction;
337	343		(2) an affirmative statement on whether the agent is
338	344		licensed and authorized to sell:
339	345		(A) fixed annuities;
340	346		(B) fixed indexed annuities;
341	347		(C) variable annuities;
342	348		(D) life insurance;
343	349		(E) mutual funds;
344	350		(F) stocks and bonds; or
345	351		(G) certificates of deposit;
346	352		(3) a statement describing the insurers for whom the
347	353		agent is authorized, contracted or appointed, or otherwise able to
348	354		sell insurance products, described as follows:
349	355		(A) one insurer;
350	356		(B) two or more insurers; or
351	357		(C) two or more insurers though primarily
352	358		contracted with one insurer;
353	359		(4) a description of the sources and types of cash
354	360		compensation and noncash compensation to be received by the agent,
355	361		including whether the agent is to be compensated for the sale of a
356	362		recommended annuity by commission as part of premium or other
357	363		remuneration received from the insurer, intermediary, or other
358	364		agent or by fee as a result of a contract for advice or consulting
359	365		services; and
360	366		(5) a notice of the consumer's right to request
361	367		additional information regarding cash compensation under
362	368		Subsection (c).
363	369		(c) On request of the consumer or the consumer's designated
364	370		representative, an agent shall disclose:
365	371		(1) a reasonable estimate of the amount of cash
366	372		compensation to be received by the agent, which may be stated as a
367	373		range of amounts or percentages; and
368	374		(2) whether the cash compensation is a one-time or
369	375		multiple occurrence amount, and if a multiple occurrence amount,
370	376		the frequency and amount of occurrence, which may be stated as a
371	377		range of amounts or percentages.
372	378		(d) Prior to or at the time of the recommendation or sale of
373	379		an annuity, the agent must have a reasonable basis to believe the
374	380		consumer has been informed of the features of the annuity,
375	381		including:
376	382		(1) the potential surrender period and surrender
377	383		charge;
378	384		(2) the potential tax penalty if the consumer sells
379	385		exchanges, surrenders, or annuitizes the annuity;
380	386		(3) mortality and expense fees;
381	387		(4) investment advisory fees;
382	388		(5) annual fees;
383	389		(6) potential charges for and features of riders or
384	390		other options of the annuity;
385	391		(7) limitations on interest returns;
386	392		(8) potential changes in non-guaranteed elements of
387	393		the annuity;
388	394		(9) insurance and investment components; and
389	395		(10) market risk.
390	396		Sec. 1115.0515. CONFLICT OF INTEREST OBLIGATION. (a) An
391	397		agent shall take reasonable steps to discover a material conflict
392	398		of interest, including a material conflict of interest related to
393	399		an ownership interest.
394	400		(b) An agent shall:
395	401		(1) identify and avoid a material conflict of
396	402		interest; or
397	403		(2) reasonably manage and disclose the conflict.
398	404		Sec. 1115.0516. DOCUMENTATION OBLIGATION. At the time of
399	405		the recommendation or sale, an agent shall:
400	406		(1) make a written record of the recommendation and
401	407		the basis for the recommendation;
402	408		(2) if applicable, obtain a statement signed by the
403	409		consumer on a form prescribed by the commissioner by rule that is
404	410		substantially similar to the National Association of Insurance
405	411		Commissioners Consumer Refusal to Provide Information form
406	412		documenting:
407	413		(A) a consumer's refusal to provide consumer
408	414		profile information; and
409	415		(B) a consumer's understanding of the
410	416		ramifications of failing to provide consumer profile information or
411	417		providing insufficient consumer profile information; and
412	418		(3) if a consumer decides to enter into an annuity
413	419		transaction that is not based on the agent's recommendation, obtain
414	420		a statement signed by the consumer on a form prescribed by the
415	421		commissioner by rule that is substantially similar to the National
416	422		Association of Insurance Commissioners Consumer Decision to
417	423		Purchase an Annuity Not Based on a Recommendation, acknowledging
418	424		that the annuity transaction is not recommended.
419	425		SECTION 10. Section 1115.052, Insurance Code, is amended by
420	426		amending Subsections (a), (b), (c), and (d) and adding Subsections
421	427		(b-1) and (c-1) to read as follows:
422	428		(a) Except as provided in Section 1115.0506, an insurer may
423	429		not issue an annuity recommended to a consumer unless there is a
424	430		reasonable basis to believe the annuity would effectively address
425	431		the consumer's financial situation, insurance needs, and financial
426	432		objectives based on the consumer's consumer profile information
427	433		[Each insurer shall establish supervision that is reasonably
428	434		designed to achieve the insurer's and the insurer's agents'
429	435		compliance with this chapter].
430	436		(b) Each [An] insurer shall establish and maintain a [may
431	437		comply with Subsection (a) by establishing and maintaining the
432	438		insurer's own] supervision system that is reasonably designed to
433	439		achieve the insurer's and the insurer's agent's compliance with this
434	440		chapter, including [under which, at a minimum, the insurer]:
435	441		(1) establishing and maintaining [maintains]
436	442		reasonable procedures to inform the insurer's agents of the
437	443		requirements of this chapter and incorporating [incorporates] the
438	444		requirements of this chapter into relevant agent training manuals;
439	445		(2) establishing and maintaining [establishes]
440	446		standards for agent product training and establishing and
441	447		maintaining [maintains] reasonable procedures to require the
442	448		insurer's agents to comply with the requirements of Section
443	449		1115.056;
444	450		(3) providing [provides] product-specific training
445	451		and training materials that explain all material features of the
446	452		insurer's annuity products to the insurer's agents;
447	453		(4) establishing and maintaining [maintains]
448	454		procedures to review each recommendation electronically,
449	455		physically, or otherwise before the issuance of an annuity that:
450	456		(A) are designed to ensure that there is a
451	457		reasonable basis to determine that the recommended annuity would
452	458		effectively address the consumer's financial situation, insurance
453	459		needs, and financial objectives [a recommendation is suitable]; and
454	460		(B) may:
455	461		(i) include the application of a screening
456	462		system to identify selected transactions for additional review; and
457	463		(ii) be designed to require additional
458	464		review only of those transactions identified for additional review
459	465		by the selection criteria;
460	466		(5) establishing and maintaining [maintains]
461	467		reasonable procedures, such as confirmation of consumer profile
462	468		[suitability] information, systematic customer surveys, agent and
463	469		consumer interviews, confirmation letters, agent statements or
464	470		attestations, and programs of internal monitoring, to detect
465	471		recommendations that are not in compliance with Sections 1115.0505
466	472		through 1115.051 and Sections 1115.0521 and 1115.054 [suitable],
467	473		which may include [involve] applying sampling procedures or
468	474		confirming consumer profile [suitability] information after the
469	475		issuance or delivery of the annuity; [and]
470	476		(6) establishing and maintaining reasonable
471	477		procedures to assess, before or on issuance or delivery of an
472	478		annuity, whether an agent has provided to the consumer the
473	479		information required to be provided under this subchapter;
474	480		(7) establishing and maintaining reasonable
475	481		procedures to identify and address suspicious consumer refusals to
476	482		provide consumer profile information;
477	483		(8) establishing and maintaining reasonable
478	484		procedures to identify and eliminate sales contests, sales quotas,
479	485		bonuses, or noncash compensation that are based on the sale of
480	486		specific annuities within a limited period of time; and
481	487		(9) annually providing [provides] a written report to
482	488		the insurer's senior management, including to the senior manager
483	489		responsible for audit functions, that details a review, with
484	490		appropriate testing, reasonably designed to determine the
485	491		effectiveness of the supervision system, the exceptions found, and
486	492		any corrective action taken or recommended.
487	493		(b-1) Subsection (b)(8) does not prohibit the receipt by
488	494		employees of health insurance, office rent, office support,
489	495		retirement benefits, or other employee benefits so long as those
490	496		benefits are not based on the volume of sales of a specific annuity
491	497		within a limited period of time.
492	498		(c) This subsection and Subsection (c-1) do [does] not
493	499		prohibit an insurer from contracting for the performance of a
494	500		function, including maintenance of procedures, required by
495	501		Subsection (b). An insurer is responsible for taking appropriate
496	502		corrective action and may be subject to sanctions and penalties
497	503		under Section 1115.102 regardless of whether the insurer contracts
498	504		for performance of a function and regardless of whether the insurer
499	505		complies with Subsection (c-1).
500	506		(c-1) An insurer's supervision system under Subsection (b)
501	507		must include the supervision of contractual performance under this
502	508		subsection that includes, at a minimum:
503	509		(1) annually obtaining certification that complies
504	510		with Section 1115.053 from a senior manager who represents that the
505	511		contracted function is properly performed; and
506	512		(2) monitoring and, as appropriate, conducting audits
507	513		to ensure that the contracted function is properly performed.
508	514		(d) An insurer is not required by this section to include in
509	515		the supervision system:
510	516		(1) an agent's recommendations to consumers of
511	517		products other than the annuities offered by the insurer; or
512	518		(2) consideration of or comparison to options
513	519		available to the agent or compensation relating to those options
514	520		other than annuities or other products offered by the insurer.
515	521		SECTION 11. Subchapter B, Chapter 1115, Insurance Code, is
516	522		amended by adding Section 1115.0521 to read as follows:
517	523		Sec. 1115.0521. PROHIBITED PRACTICES. An agent or insurer
518	524		may not dissuade or attempt to dissuade a consumer from:
519	525		(1) truthfully responding to an insurer's request for
520	526		confirmation of consumer profile information;
521	527		(2) filing a complaint; or
522	528		(3) cooperating with the investigation of a complaint.
523	529		SECTION 12. Section 1115.053, Insurance Code, is amended to
524	530		read as follows:
525	531		Sec. 1115.053. CERTIFICATION REQUIREMENTS. A person may
526	532		not provide a certification under Section 1115.052(c-1)(1)
527	533		[1115.052(c)(1)] unless the person:
528	534		(1) is a senior manager with responsibility for the
529	535		delegated functions; and
530	536		(2) has a reasonable basis for making the
531	537		certification.
532	538		SECTION 13. Section 1115.054, Insurance Code, is amended to
533	539		read as follows:
534	540		Sec. 1115.054. SAFE HARBOR [COMPLIANCE WITH CERTAIN
535	541		NATIONAL STANDARDS]. (a) Recommendations and [Subject to
536	542		Subsection (c),] sales of annuities made in compliance with
537	543		comparable standards [the conduct rules of the Financial Industry
538	544		Regulatory Authority (FINRA) relating to suitability and
539	545		supervision of annuity transactions, or the rules of another
540	546		national organization recognized by the commissioner,] satisfy the
541	547		requirements of this chapter. This section applies to
542	548		recommendations and [FINRA member broker-dealer] sales of
543	549		[variable annuities and fixed] annuities made by a financial
544	550		professional in compliance with business rules, controls, and
545	551		procedures that satisfy a comparable standard even if such standard
546	552		would not otherwise apply to the product or recommendation at issue
547	553		[if the suitability and supervision conduct rules are similar to
548	554		those applied to variable annuity sales].
549	555		(b) This section does not affect or limit the commissioner's
550	556		ability to enforce or investigate under this chapter.
551	557		(c) This section does not limit the insurer's obligation to
552	558		comply with Section 1115.052(a), although the insurer may base its
553	559		analysis on information received from either the financial
554	560		professional or the entity supervising the financial professional.
555	561		(d) Subsection (a) applies only if the insurer:
556	562		(1) using information collected in the normal course
557	563		of the insurer's business, monitors the relevant conduct of the
558	564		financial professional or the entity responsible for supervising
559	565		the financial professional, such as the financial professional's
560	566		[FINRA member] broker-dealer or an investment adviser registered
561	567		under federal or state securities laws [using information collected
562	568		in the normal course of the insurer's business]; and
563	569		(2) provides to the entity responsible for supervising
564	570		the financial professional, such as the financial professional's
565	571		[FINRA member] broker-dealer or investment adviser registered
566	572		under federal or state securities laws, information and reports
567	573		that are reasonably appropriate to assist the entity in maintaining
568	574		[broker-dealer to maintain] the entity's [broker-dealer's]
569	575		supervision system.
570	576		(e) For purposes of this section, "financial professional"
571	577		means an agent that is regulated and acting as:
572	578		(1) a broker-dealer registered under federal or state
573	579		securities laws or a registered representative of a broker-dealer;
574	580		(2) an investment adviser registered under federal or
575	581		state securities laws or an investment adviser representative
576	582		associated with the federal or state registered investment adviser;
577	583		or
578	584		(3) a plan fiduciary under Section 3(21), Employee
579	585		Retirement Income Security Act of 1974 (29 U.S.C. Section 1002(21))
580	586		or a fiduciary under Section 4975(e)(3), Internal Revenue Code of
581	587		1986.
582	588		(f) For purposes of this section, "comparable standards"
583	589		means:
584	590		(1) with respect to a broker-dealer or a registered
585	591		representative of a broker-dealer, applicable rules of the
586	592		Financial Industry Regulatory Authority (FINRA) or a successor
587	593		agency and the United States Securities and Exchange Commission
588	594		pertaining to best interest obligations and supervision of annuity
589	595		recommendations and sales, including Regulation Best Interest (17
590	596		C.F.R. Section 240.15l-1), including subsequent amendments or
591	597		successor regulations;
592	598		(2) with respect to an investment adviser registered
593	599		under federal or state securities laws or an investment adviser
594	600		representative, the fiduciary duties and all other requirements
595	601		imposed on those investment advisers or investment adviser
596	602		representatives by contract or under the Investment Advisers Act of
597	603		1940 (15 U.S.C. Section 80b-1 et seq.) or applicable state
598	604		securities law or regulations, including Form ADV (17 C.F.R.
599	605		Section 279.1), and interpretations; and
600	606		(3) with respect to a plan fiduciary or a fiduciary,
601	607		the duties, obligations, prohibitions, and all other requirements
602	608		attendant to that status under the Employee Retirement Income
603	609		Security Act of 1974 (29 U.S.C. Section 1001 et seq.) or the
604	610		Internal Revenue Code of 1986.
605	611		SECTION 14. Section 1115.055(a), Insurance Code, is amended
606	612		to read as follows:
607	613		(a) Each agent, general agent, independent agency, and
608	614		insurer shall maintain, or otherwise be able to make available to
609	615		the commissioner, records of the information collected from the
610	616		consumer, disclosures made to the consumer, including summaries of
611	617		oral disclosures, and other information used in making a
612	618		recommendation that was the basis for an insurance [a] transaction
613	619		subject to this chapter until the fifth anniversary of the date on
614	620		which the transaction is completed by the insurer.
615	621		SECTION 15. Section 1115.056, Insurance Code, is amended by
616	622		amending Subsections (a), (b), (d), and (f) and adding Subsection
617	623		(i-1) to read as follows:
618	624		(a) An agent may not solicit the sale of an annuity product
619	625		unless the agent has adequate knowledge of the product to recommend
620	626		the annuity and the agent is in compliance with the insurer's
621	627		standards for product training. An agent may rely on
622	628		insurer-provided, product-specific training standards and
623	629		materials to comply with this subsection.
624	630		(b) An agent who engages in the sale of annuity products
625	631		must complete a one-time four-credit training course approved by
626	632		the department and provided by a continuing education provider.
627	633		(d) The training required by Subsection (b) must include
628	634		information on the following topics:
629	635		(1) the types of annuities and various classifications
630	636		of annuities;
631	637		(2) identification of the parties to an annuity;
632	638		(3) how product-specific [fixed, variable, and
633	639		indexed] annuity features [contract provisions] affect consumers;
634	640		(4) the application of income taxation of qualified
635	641		and nonqualified annuities;
636	642		(5) the primary uses of annuities; and
637	643		(6) appropriate standard of conduct sales practices,
638	644		replacement, and disclosure requirements.
639	645		(f) A provider of an annuity training [a] course intended to
640	646		comply with Subsection (b) must register as a continuing education
641	647		provider in this state and comply with the rules and guidelines
642	648		applicable to agent continuing education courses provided by
643	649		Chapter 4004.
644	650		(i-1) A course that is substantially similar to a course
645	651		required by this section satisfies the requirement.
646	652		SECTION 16. The heading to Subchapter C, Chapter 1115,
647	653		Insurance Code, is amended to read as follows:
648	654		SUBCHAPTER C. MITIGATION; ENFORCEMENT
649	655		SECTION 17. Section 1115.101, Insurance Code, is amended to
650	656		read as follows:
651	657		Sec. 1115.101. MITIGATION. An insurer is responsible for
652	658		compliance with this chapter. If a violation occurs because of the
653	659		action or inaction of the insurer or the insurer's agent, the
654	660		commissioner may:
655	661		(1) order:
656	662		(A) the insurer to take reasonable appropriate
657	663		corrective action for any consumer harmed by a failure to comply
658	664		with this chapter by the insurer, [or by] the insurer's agent, or an
659	665		entity contracted to perform the insurer's supervisory duties
660	666		[because of a violation of this chapter]; or
661	667		(B) a general agency, independent agency, or the
662	668		agent to take reasonably appropriate corrective action for any
663	669		consumer harmed by the agent's violation of this chapter; and
664	670		(2) impose appropriate sanctions as provided by
665	671		Section 1115.102.
666	672		SECTION 18. The following sections of the Insurance Code
667	673		are repealed:
668	674		(1) Section 1115.002(6);
669	675		(2) Sections 1115.051(c), (d), (e), and (f); and
670	676		(3) Section 1115.052(e).
671	677		SECTION 19. (a) Not later than December 1, 2021, the Texas
672	678		Department of Insurance shall approve a training course for
673	679		purposes of Section 1115.056, Insurance Code, as amended by this
674	680		Act.
675	681		(b) Section 1115.056, Insurance Code, as amended by this
676	682		Act, applies only to the sale of an annuity on or after January 1,
677	683		2022. The sale of an annuity before that date is governed by the law
678	684		as it existed immediately before the effective date of this Act, and
679	685		that law is continued in effect for that purpose.
680	686		(c) An agent who has completed an annuity training course
681	687		for purposes of Section 1115.056, Insurance Code, before January 1,
682	688		2022, may comply with Section 1115.056, Insurance Code, as amended
683	689		by this Act, by completing either:
684	690		(1) a new four-credit training course approved by the
685	691		Texas Department of Insurance under Subsection (a) of this section;
686	692		or
687	693		(2) an additional one-time one-credit training course
688	694		approved by the Texas Department of Insurance and provided by a
689	695		continuing education provider approved by the Texas Department of
690	696		Insurance on appropriate sales practices, replacement, and
691	697		disclosure requirements.
692	698		SECTION 20. (a) Section 1107.055, Insurance Code, as
693	699		amended by this Act, applies only to an annuity contract delivered,
694	700		issued for delivery, or renewed on or after January 1, 2022. An
695	701		annuity contract delivered, issued for delivery, or renewed before
696	702		January 1, 2022, is governed by the law as it existed immediately
697	703		before the effective date of this Act, and that law is continued in
698	704		effect for that purpose.
699	705		(b) Chapter 1115, Insurance Code, as amended by this Act,
700	706		applies only to an annuity transaction that occurs on or after the
701	707		effective date of this Act. An annuity transaction that occurs
702	708		before the effective date of this Act is governed by the law as it
703	709		existed immediately before the effective date of this Act, and that
704	710		law is continued in effect for that purpose.
705	711		SECTION 21. This Act takes effect September 1, 2021.
706		-	______________________________ ______________________________
707		-	President of the Senate Speaker of the House
708		-	I certify that H.B. No. 1777 was passed by the House on April
709		-	29, 2021, by the following vote: Yeas 144, Nays 1, 1 present, not
710		-	voting.
711		-	______________________________
712		-	Chief Clerk of the House
713		-	I certify that H.B. No. 1777 was passed by the Senate on May
714		-	19, 2021, by the following vote: Yeas 31, Nays 0.
715		-	______________________________
716		-	Secretary of the Senate
717		-	APPROVED: _____________________
718		-	Date
719		-	_____________________
720		-	Governor
	712	+	* * * * *