H.B. No. 1777
AN ACT
relating to disclosures and standards required for certain annuity
transactions and benefits under certain annuity contracts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1107.055, Insurance Code, is amended to
read as follows:
Sec. 1107.055. INTEREST RATE. The interest rate used in
determining minimum nonforfeiture amounts shall be an annual rate
of interest determined as the lesser of three percent per annum and
the following, which must be specified in the contract if the
interest rate will be redetermined:
(1) the five-year Constant Maturity Treasury Rate
reported by the Federal Reserve as of a date, or average over a
period, rounded to the nearest 1/20th of one percent, specified in
the contract no longer than 15 months prior to the contract issue
date or redetermination date under Subdivision (4);
(2) reduced by 125 basis points;
(3) where the resulting interest rate is not less than
0.15 [one] percent; and
(4) the interest rate shall apply for an initial
period and may be redetermined for additional periods. The
redetermination date, basis, and period, if any, shall be stated in
the contract. As used in this section, basis is the date, or
average over a specified period, which produces the five-year
Constant Maturity Treasury Rate to be used at each redetermination
date.
SECTION 2. Section 1115.001, Insurance Code, is amended to
read as follows:
Sec. 1115.001. PURPOSE. The purpose of this chapter is to
require an agent to act in the best interest of the consumer when
making a recommendation of an [establish standards and procedures
regarding recommendations made to a consumer that result in a
transaction involving] annuity [products,] and to require insurers
to establish and maintain a system to supervise those
recommendations so [, to ensure] that the insurance needs and
financial objectives of the consumer as of the time of the
transaction are effectively [appropriately] addressed.
SECTION 3. Section 1115.002, Insurance Code, is amended by
amending Subdivisions (2-a), (3), (4), and (5) and adding
Subdivisions (2-b), (2-c), (3-a), (3-b), (3-c), and (3-d) to read
as follows:
(2-a) "Cash compensation" means a discount,
concession, fee, service fee, commission, sales charge, loan,
override, or cash benefit received by an agent from an insurer,
intermediary, or consumer in connection with the recommendation or
sale of an annuity.
(2-b) "Consumer profile information" means
information that is reasonably appropriate to determine whether a
recommendation addresses the consumer's financial situation,
insurance needs, and financial objectives, including the
following:
(A) age;
(B) annual income;
(C) existing assets and financial products,
including investment, annuity, and insurance holdings;
(D) financial situation and needs, including
debts and other obligations;
(E) financial experience;
(F) financial objectives;
(G) financial resources used to fund the annuity;
(H) financial time horizon;
(I) insurance needs;
(J) intended use of the annuity;
(K) liquid net worth;
(L) liquidity needs;
(M) risk tolerance, including willingness to
accept non-guaranteed elements in the annuity; and
(N) tax status.
(2-c) "Continuing education provider" means a person
authorized to offer continuing education courses under Chapter
4004.
(3) "Insurer" means a company authorized to engage in
the business of life insurance and annuities in this state, and
includes a fraternal benefit society operating under Chapter 885.
(3-a) "Intermediary" means 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
agents.
(3-b) "Material conflict of interest" means a
financial interest of an agent 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 or noncash
compensation paid to an agent.
(3-c) "Noncash compensation" means any form of
compensation that is not cash compensation, including health
insurance, office rent, office support, and retirement benefits.
(3-d) "Non-guaranteed element" means a premium,
credited interest rate, including any bonus, benefit, value,
dividend, non-interest based credit, or charge, or an element of a
formula used to determine any of those elements, that is determined
at the discretion of the insurer and is not guaranteed at issue. The
term includes an element that is calculated using an element that is
determined at the discretion of the insurer and is not guaranteed at
issue.
(4) "Recommendation" means advice provided by an
agent, or an insurer if no agent is involved, to an individual
consumer that is intended to result or does result [results] in a
purchase, exchange, or replacement of an annuity made in accordance
with that advice. The term does not include a general communication
to the public, any generalized customer service assistance or
administrative support, any general educational information or
tools, a prospectus, or any other product or sales material.
(5) "Replacement" means a transaction in which a new
annuity [policy or contract] is to be purchased and the proposing
agent, or the proposing insurer regardless of whether [if] an agent
is [not] involved, knows or should know that, by reason of the
transaction, an existing annuity or other insurance policy [or
contract] has been or is to be:
(A) lapsed, forfeited, surrendered or partially
surrendered, assigned to the replacing insurer, or otherwise
terminated;
(B) 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;
(C) amended so as to effect either a reduction in
benefits or in the term for which coverage would otherwise remain in
force or for which benefits would be paid;
(D) reissued with any reduction in cash value; or
(E) used in a financed purchase.
SECTION 4. Section 1115.003, Insurance Code, is amended to
read as follows:
Sec. 1115.003. APPLICABILITY; EXEMPTIONS. (a) This
chapter applies to any sale of [recommendation to purchase,
replace, or exchange] an annuity [that:
[(1) is made to a consumer by an agent, or an insurer
if an agent is not involved; and
[(2) results in the recommended purchase,
replacement, or exchange].
(b) Unless otherwise specifically included, this chapter
does not apply to transactions involving:
(1) direct response solicitations if there is no
recommendation based on information collected from the consumer
under this chapter; [or]
(2) contracts used to fund:
(A) an employee pension benefit plan or employee
welfare benefit plan covered by the Employee Retirement Income
Security Act of 1974 (29 U.S.C. Section 1001 et seq.);
(B) a plan described by Section 401(a), 401(k),
403(b), 408(k), or 408(p), Internal Revenue Code of 1986, if
established or maintained by an employer;
(C) a government or church plan, as defined by
Section 414, Internal Revenue Code of 1986, a government or church
welfare benefit plan, or a deferred compensation plan of a state or
local government or tax exempt organization described under Section
457, Internal Revenue Code of 1986; or
(D) a nonqualified deferred compensation
arrangement established or maintained by an employer or plan
sponsor;
(3) [(E)] settlements of or assumptions of
liabilities associated with personal injury litigation or any
dispute or claim resolution process; or
(4) [(F)] prepaid funeral benefits contracts, as
defined by Chapter 154, Finance Code.
SECTION 5. Section 1115.004, Insurance Code, is amended to
read as follows:
Sec. 1115.004. NO CAUSE OF ACTION CREATED. This chapter may
not be construed to create or imply a private cause of action
against an agent or insurer or to subject an agent or insurer to
civil liability for a violation of:
(1) this chapter or a rule adopted under this chapter;
or
(2) a standard governing the conduct of a fiduciary or
a fiduciary relationship.
SECTION 6. Subchapter B, Chapter 1115, Insurance Code, is
amended by adding Sections 1115.0505, 1115.0506, 1115.0507, and
1115.0508 to read as follows:
Sec. 1115.0505. AGENTS EXERCISING MATERIAL CONTROL. (a)
This subchapter applies to each agent who:
(1) exercises material control or influence in making
a recommendation or sale; and
(2) receives direct compensation as a result of the
recommendation or sale, regardless of whether the agent has direct
contact with the consumer.
(b) Activities that do not constitute material control or
influence include providing or delivering marketing or educational
materials, product wholesaling or other back office product
support, general supervision of an agent, and similar activities.
Sec. 1115.0506. TRANSACTIONS NOT BASED ON RECOMMENDATION;
CERTAIN EXEMPTIONS FROM SUBCHAPTER. An agent does not have an
obligation to a consumer under Section 1115.0513 if:
(1) the agent does not make a recommendation;
(2) the agent makes a recommendation based on
materially inaccurate information provided by the consumer;
(3) the consumer refuses to provide consumer profile
information; or
(4) the consumer enters into an annuity transaction
that is not based on the recommendation from the agent or the
insurer.
Sec. 1115.0507. INSURER OBLIGATIONS. (a) Notwithstanding
Section 1115.0506, an insurer's issuance of an annuity must be
reasonable under the circumstances known to the insurer at the time
the annuity is issued.
(b) If there is no agent involved in an annuity transaction,
the obligations described in this subchapter apply to the insurer
that recommends or sells the annuity in the same way those
obligations would apply to an agent.
Sec. 1115.0508. ADDITIONAL LICENSURE NOT REQUIRED. Nothing
in this subchapter may be construed to require an agent to obtain a
license other than the license described by Chapter 4054.
SECTION 7. The heading to Section 1115.051, Insurance Code,
is amended to read as follows:
Sec. 1115.051. BEST-INTEREST OBLIGATION [SUITABILITY OF
ANNUITY PRODUCT REQUIRED].
SECTION 8. Sections 1115.051(a) and (b), Insurance Code,
are amended to read as follows:
(a) When making a recommendation of an annuity, an agent
shall act in the best interest of the consumer under the
circumstances known to the agent at the time the recommendation is
made, without placing the agent's or the insurer's financial
interest ahead of the consumer's interest [In recommending to a
consumer the purchase of an annuity or the exchange of an annuity
that results in another insurance transaction or series of
insurance transactions, the agent, or the insurer if an agent is not
involved, must have a reasonable basis to believe 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 financial situation and needs, including the consumer's
suitability information;
[(2) the consumer has been reasonably informed of
various features of the annuity, such as the potential surrender
period and the surrender charge, any potential tax penalty if the
consumer sells, exchanges, 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, such as tax-deferred growth, annuitization, or a
death or living benefit;
[(4) the particular annuity as a whole, the underlying
subaccounts to which funds are allocated at the time of the purchase
or exchange of the annuity, and any riders or similar product
enhancements are suitable, and, in the case of an exchange or
replacement, the transaction as a whole is suitable, for the
particular consumer based on the consumer's suitability
information; and
[(5) in the case of an exchange or replacement of an
annuity, the exchange or replacement is suitable, including taking
into consideration whether the consumer:
[(A) will incur a surrender charge, be subject to
the commencement of a new surrender period, lose existing benefits
such as death, living, or other contractual benefits, or be subject
to increased fees, investment advisory fees, or charges for riders
or similar product enhancements;
[(B) would benefit from product enhancements and
improvements; and
[(C) has had another annuity exchange or
replacement, and in particular, an exchange or replacement in the
preceding 36 months].
(b) An agent is presumed to act in the best interest of the
consumer if the agent satisfies the care, disclosure, conflict of
interest, and documentation obligations described by this
subchapter [Before the execution of a purchase, exchange, or
replacement of an annuity resulting from a recommendation, an
agent, or an insurer if an agent is not involved, shall make
reasonable efforts to obtain the consumer's suitability
information].
SECTION 9. Subchapter B, Chapter 1115, Insurance Code, is
amended by adding Sections 1115.0513, 1115.0514, 1115.0515, and
1115.0516 to read as follows:
Sec. 1115.0513. CARE OBLIGATION. (a) In making a
recommendation, an agent shall exercise reasonable diligence,
care, and skill to:
(1) obtain consumer profile information from the
consumer before making the recommendation of an annuity;
(2) know the consumer's financial situation, insurance
needs, and financial objectives;
(3) understand the available recommendation options
available to the agent;
(4) consider the types of products the agent is
authorized and licensed to recommend or sell that address the
consumer's financial situation, insurance needs, and financial
objectives;
(5) have a reasonable basis to believe the
recommendation addresses the consumer's financial situation,
insurance needs, and financial objectives over the life of the
product, in light of the consumer profile information;
(6) have a reasonable basis to believe the consumer
would benefit from certain features of the annuity, such as
annuitization, a death or living benefit, or other
insurance-related feature; and
(7) communicate the basis of the recommendation.
(b) Subsection (a) does not require:
(1) analysis or consideration of a product outside the
authority and license of the agent;
(2) analysis or consideration of a product or strategy
that is an alternative to an annuity;
(3) recommendation of the annuity with the lowest
one-time or multiple occurrence compensation structure; or
(4) ongoing monitoring of the consumer's financial
situation.
(c) The agent shall consider consumer profile information,
characteristics of the insurer, and product costs, rates, benefits,
and features in determining whether an annuity effectively
addresses the consumer's financial situation, insurance needs, and
financial objectives. The agent may place varying levels of
importance on each of those factors based on the facts and
circumstances of a particular case, but may not consider one factor
in isolation.
(d) In the case of an exchange or replacement of an annuity,
the agent shall consider the whole transaction, including whether:
(1) the consumer will incur a surrender charge, be
subjected to the commencement of a new surrender period, lose
existing benefits such as death, living, or other contractual
benefits, or be subject to increased fees, investment advisory
fees, or charges for riders and similar product enhancements;
(2) the replacing product would substantially benefit
the consumer in comparison to the replaced product over the life of
the product; and
(3) the consumer has had an annuity exchange or
replacement in the preceding 60 months.
(e) This section applies to an annuity as a whole,
including:
(1) underlying subaccounts to which money is allocated
at the time of the purchase or exchange of an annuity; and
(2) any riders and similar product enhancements.
(f) An agent shall be held to standards applicable to an
agent with similar authority and licensure with respect to the
requirements of this section. This section does not create a
fiduciary obligation or relationship and only creates a regulatory
obligation. This section does not affect any ongoing monitoring
obligation an agent may have under a fiduciary, consulting,
investment advising, or financial planning agreement between the
consumer and the agent.
Sec. 1115.0514. DISCLOSURE OBLIGATION. (a) Before the
recommendation or sale of an annuity, an agent shall provide a
disclosure to the consumer on a form prescribed by the commissioner
by rule.
(b) The prescribed form must be substantially similar to the
National Association of Insurance Commissioners Insurance Agent
Disclosure for Annuities form. The form must include:
(1) a description of the scope and terms of the agent's
relationship with the consumer and role in the transaction;
(2) an affirmative statement on whether the agent is
licensed and authorized to sell:
(A) fixed annuities;
(B) fixed indexed annuities;
(C) variable annuities;
(D) life insurance;
(E) mutual funds;
(F) stocks and bonds; or
(G) certificates of deposit;
(3) a statement describing the insurers for whom the
agent is authorized, contracted or appointed, or otherwise able to
sell insurance products, described as follows:
(A) one insurer;
(B) two or more insurers; or
(C) two or more insurers though primarily
contracted with one insurer;
(4) a description of the sources and types of cash
compensation and noncash compensation to be received by the agent,
including whether the agent 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
agent or by fee as a result of a contract for advice or consulting
services; and
(5) a notice of the consumer's right to request
additional information regarding cash compensation under
Subsection (c).
(c) On request of the consumer or the consumer's designated
representative, an agent shall disclose:
(1) a reasonable estimate of the amount of cash
compensation to be received by the agent, which may be stated as a
range of amounts or percentages; and
(2) whether the cash compensation is a one-time or
multiple occurrence amount, and if a multiple occurrence amount,
the frequency and amount of occurrence, which may be stated as a
range of amounts or percentages.
(d) Prior to or at the time of the recommendation or sale of
an annuity, the agent must have a reasonable basis to believe the
consumer has been informed of the features of the annuity,
including:
(1) the potential surrender period and surrender
charge;
(2) the potential tax penalty if the consumer sells
exchanges, surrenders, or annuitizes the annuity;
(3) mortality and expense fees;
(4) investment advisory fees;
(5) annual fees;
(6) potential charges for and features of riders or
other options of the annuity;
(7) limitations on interest returns;
(8) potential changes in non-guaranteed elements of
the annuity;
(9) insurance and investment components; and
(10) market risk.
Sec. 1115.0515. CONFLICT OF INTEREST OBLIGATION. (a) An
agent shall take reasonable steps to discover a material conflict
of interest, including a material conflict of interest related to
an ownership interest.
(b) An agent shall:
(1) identify and avoid a material conflict of
interest; or
(2) reasonably manage and disclose the conflict.
Sec. 1115.0516. DOCUMENTATION OBLIGATION. At the time of
the recommendation or sale, an agent shall:
(1) make a written record of the recommendation and
the basis for the recommendation;
(2) if applicable, obtain a statement signed by the
consumer on a form prescribed by the commissioner by rule that is
substantially similar to the National Association of Insurance
Commissioners Consumer Refusal to Provide Information form
documenting:
(A) a consumer's refusal to provide consumer
profile information; and
(B) a consumer's understanding of the
ramifications of failing to provide consumer profile information or
providing insufficient consumer profile information; and
(3) if a consumer decides to enter into an annuity
transaction that is not based on the agent's recommendation, obtain
a statement signed by the consumer on a form prescribed by the
commissioner by rule that is substantially similar to the National
Association of Insurance Commissioners Consumer Decision to
Purchase an Annuity Not Based on a Recommendation, acknowledging
that the annuity transaction is not recommended.
SECTION 10. Section 1115.052, Insurance Code, is amended by
amending Subsections (a), (b), (c), and (d) and adding Subsections
(b-1) and (c-1) to read as follows:
(a) Except as provided in Section 1115.0506, 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 consumer's financial situation, insurance needs, and financial
objectives based on the consumer's consumer profile information
[Each insurer shall establish supervision that is reasonably
designed to achieve the insurer's and the insurer's agents'
compliance with this chapter].
(b) Each [An] insurer shall establish and maintain a [may
comply with Subsection (a) by establishing and maintaining the
insurer's own] supervision system that is reasonably designed to
achieve the insurer's and the insurer's agent's compliance with this
chapter, including [under which, at a minimum, the insurer]:
(1) establishing and maintaining [maintains]
reasonable procedures to inform the insurer's agents of the
requirements of this chapter and incorporating [incorporates] the
requirements of this chapter into relevant agent training manuals;
(2) establishing and maintaining [establishes]
standards for agent product training and establishing and
maintaining [maintains] reasonable procedures to require the
insurer's agents to comply with the requirements of Section
1115.056;
(3) providing [provides] product-specific training
and training materials that explain all material features of the
insurer's annuity products to the insurer's agents;
(4) establishing and maintaining [maintains]
procedures to review each recommendation electronically,
physically, or otherwise before the issuance of an annuity that:
(A) are designed to ensure that there is a
reasonable basis to determine that the recommended annuity would
effectively address the consumer's financial situation, insurance
needs, and financial objectives [a recommendation is suitable]; and
(B) may:
(i) include the application of a screening
system to identify selected transactions for additional review; and
(ii) be designed to require additional
review only of those transactions identified for additional review
by the selection criteria;
(5) establishing and maintaining [maintains]
reasonable procedures, such as confirmation of consumer profile
[suitability] information, systematic customer surveys, agent and
consumer interviews, confirmation letters, agent statements or
attestations, and programs of internal monitoring, to detect
recommendations that are not in compliance with Sections 1115.0505
through 1115.051 and Sections 1115.0521 and 1115.054 [suitable],
which may include [involve] applying sampling procedures or
confirming consumer profile [suitability] information after the
issuance or delivery of the annuity; [and]
(6) establishing and maintaining reasonable
procedures to assess, before or on issuance or delivery of an
annuity, whether an agent has provided to the consumer the
information required to be provided under this subchapter;
(7) establishing and maintaining reasonable
procedures to identify and address suspicious consumer refusals to
provide consumer profile information;
(8) establishing and maintaining reasonable
procedures to identify and eliminate sales contests, sales quotas,
bonuses, or noncash compensation that are based on the sale of
specific annuities within a limited period of time; and
(9) annually providing [provides] a written report to
the insurer's senior management, including to the senior manager
responsible for audit functions, that details a review, with
appropriate testing, reasonably designed to determine the
effectiveness of the supervision system, the exceptions found, and
any corrective action taken or recommended.
(b-1) Subsection (b)(8) does not prohibit the receipt by
employees of health insurance, office rent, office support,
retirement benefits, or other employee benefits so long as those
benefits are not based on the volume of sales of a specific annuity
within a limited period of time.
(c) This subsection and Subsection (c-1) do [does] not
prohibit an insurer from contracting for the performance of a
function, including maintenance of procedures, required by
Subsection (b). An insurer is responsible for taking appropriate
corrective action and may be subject to sanctions and penalties
under Section 1115.102 regardless of whether the insurer contracts
for performance of a function and regardless of whether the insurer
complies with Subsection (c-1).
(c-1) An insurer's supervision system under Subsection (b)
must include the supervision of contractual performance under this
subsection that includes, at a minimum:
(1) annually obtaining certification that complies
with Section 1115.053 from a senior manager who represents that the
contracted function is properly performed; and
(2) monitoring and, as appropriate, conducting audits
to ensure that the contracted function is properly performed.
(d) An insurer is not required by this section to include in
the supervision system:
(1) an agent's recommendations to consumers of
products other than the annuities offered by the insurer; or
(2) consideration of or comparison to options
available to the agent or compensation relating to those options
other than annuities or other products offered by the insurer.
SECTION 11. Subchapter B, Chapter 1115, Insurance Code, is
amended by adding Section 1115.0521 to read as follows:
Sec. 1115.0521. PROHIBITED PRACTICES. An agent or insurer
may not dissuade or attempt to dissuade a consumer from:
(1) truthfully responding to an insurer's request for
confirmation of consumer profile information;
(2) filing a complaint; or
(3) cooperating with the investigation of a complaint.
SECTION 12. Section 1115.053, Insurance Code, is amended to
read as follows:
Sec. 1115.053. CERTIFICATION REQUIREMENTS. A person may
not provide a certification under Section 1115.052(c-1)(1)
[1115.052(c)(1)] unless the person:
(1) is a senior manager with responsibility for the
delegated functions; and
(2) has a reasonable basis for making the
certification.
SECTION 13. Section 1115.054, Insurance Code, is amended to
read as follows:
Sec. 1115.054. SAFE HARBOR [COMPLIANCE WITH CERTAIN
NATIONAL STANDARDS]. (a) Recommendations and [Subject to
Subsection (c),] sales of annuities made in compliance with
comparable standards [the conduct rules of the Financial Industry
Regulatory Authority (FINRA) relating to suitability and
supervision of annuity transactions, or the rules of another
national organization recognized by the commissioner,] satisfy the
requirements of this chapter. This section applies to
recommendations and [FINRA member broker-dealer] sales of
[variable annuities and fixed] annuities made by a financial
professional in compliance with business rules, controls, and
procedures that satisfy a comparable standard even if such standard
would not otherwise apply to the product or recommendation at issue
[if the suitability and supervision conduct rules are similar to
those applied to variable annuity sales].
(b) This section does not affect or limit the commissioner's
ability to enforce or investigate under this chapter.
(c) This section does not limit the insurer's obligation to
comply with Section 1115.052(a), although the insurer may base its
analysis on information received from either the financial
professional or the entity supervising the financial professional.
(d) Subsection (a) applies only if the insurer:
(1) using information collected in the normal course
of the insurer's business, monitors the relevant conduct of the
financial professional or the entity responsible for supervising
the financial professional, such as the financial professional's
[FINRA member] broker-dealer or an investment adviser registered
under federal or state securities laws [using information collected
in the normal course of the insurer's business]; and
(2) provides to the entity responsible for supervising
the financial professional, such as the financial professional's
[FINRA member] broker-dealer or investment adviser registered
under federal or state securities laws, information and reports
that are reasonably appropriate to assist the entity in maintaining
[broker-dealer to maintain] the entity's [broker-dealer's]
supervision system.
(e) For purposes of this section, "financial professional"
means an agent that is regulated and acting as:
(1) a broker-dealer registered under federal or state
securities laws or a registered representative of a broker-dealer;
(2) an investment adviser registered under federal or
state securities laws or an investment adviser representative
associated with the federal or state registered investment adviser;
or
(3) a plan fiduciary under Section 3(21), Employee
Retirement Income Security Act of 1974 (29 U.S.C. Section 1002(21))
or a fiduciary under Section 4975(e)(3), Internal Revenue Code of
1986.
(f) For purposes of this section, "comparable standards"
means:
(1) with respect to a broker-dealer or a registered
representative of a broker-dealer, applicable rules of the
Financial Industry Regulatory Authority (FINRA) or a successor
agency and the United States Securities and Exchange Commission
pertaining to best interest obligations and supervision of annuity
recommendations and sales, including Regulation Best Interest (17
C.F.R. Section 240.15l-1), including subsequent amendments or
successor regulations;
(2) with respect to an investment adviser registered
under federal or state securities laws or an investment adviser
representative, the fiduciary duties and all other requirements
imposed on those investment advisers or investment adviser
representatives by contract or under the Investment Advisers Act of
1940 (15 U.S.C. Section 80b-1 et seq.) or applicable state
securities law or regulations, including Form ADV (17 C.F.R.
Section 279.1), and interpretations; and
(3) with respect to a plan fiduciary or a fiduciary,
the duties, obligations, prohibitions, and all other requirements
attendant to that status under the Employee Retirement Income
Security Act of 1974 (29 U.S.C. Section 1001 et seq.) or the
Internal Revenue Code of 1986.
SECTION 14. Section 1115.055(a), Insurance Code, is amended
to read as follows:
(a) Each agent, general agent, independent agency, and
insurer shall maintain, or otherwise be able to make available to
the commissioner, records of the information collected from the
consumer, disclosures made to the consumer, including summaries of
oral disclosures, and other information used in making a
recommendation that was the basis for an insurance [a] transaction
subject to this chapter until the fifth anniversary of the date on
which the transaction is completed by the insurer.
SECTION 15. Section 1115.056, Insurance Code, is amended by
amending Subsections (a), (b), (d), and (f) and adding Subsection
(i-1) to read as follows:
(a) An agent may not solicit the sale of an annuity product
unless the agent has adequate knowledge of the product to recommend
the annuity and the agent is in compliance with the insurer's
standards for product training. An agent may rely on
insurer-provided, product-specific training standards and
materials to comply with this subsection.
(b) An agent who engages in the sale of annuity products
must complete a one-time four-credit training course approved by
the department and provided by a continuing education provider.
(d) The training required by Subsection (b) must include
information on the following topics:
(1) the types of annuities and various classifications
of annuities;
(2) identification of the parties to an annuity;
(3) how product-specific [fixed, variable, and
indexed] annuity features [contract provisions] affect consumers;
(4) the application of income taxation of qualified
and nonqualified annuities;
(5) the primary uses of annuities; and
(6) appropriate standard of conduct sales practices,
replacement, and disclosure requirements.
(f) A provider of an annuity training [a] course intended to
comply with Subsection (b) must register as a continuing education
provider in this state and comply with the rules and guidelines
applicable to agent continuing education courses provided by
Chapter 4004.
(i-1) A course that is substantially similar to a course
required by this section satisfies the requirement.
SECTION 16. The heading to Subchapter C, Chapter 1115,
Insurance Code, is amended to read as follows:
SUBCHAPTER C. MITIGATION; ENFORCEMENT
SECTION 17. Section 1115.101, Insurance Code, is amended to
read as follows:
Sec. 1115.101. MITIGATION. An insurer is responsible for
compliance with this chapter. If a violation occurs because of the
action or inaction of the insurer or the insurer's agent, the
commissioner may:
(1) order:
(A) the insurer to take reasonable appropriate
corrective action for any consumer harmed by a failure to comply
with this chapter by the insurer, [or by] the insurer's agent, or an
entity contracted to perform the insurer's supervisory duties
[because of a violation of this chapter]; or
(B) a general agency, independent agency, or the
agent to take reasonably appropriate corrective action for any
consumer harmed by the agent's violation of this chapter; and
(2) impose appropriate sanctions as provided by
Section 1115.102.
SECTION 18. The following sections of the Insurance Code
are repealed:
(1) Section 1115.002(6);
(2) Sections 1115.051(c), (d), (e), and (f); and
(3) Section 1115.052(e).
SECTION 19. (a) Not later than December 1, 2021, the Texas
Department of Insurance shall approve a training course for
purposes of Section 1115.056, Insurance Code, as amended by this
Act.
(b) Section 1115.056, Insurance Code, as amended by this
Act, applies only to the sale of an annuity on or after January 1,
2022. The sale of an annuity before that date is governed by the law
as it existed immediately before the effective date of this Act, and
that law is continued in effect for that purpose.
(c) An agent who has completed an annuity training course
for purposes of Section 1115.056, Insurance Code, before January 1,
2022, may comply with Section 1115.056, Insurance Code, as amended
by this Act, by completing either:
(1) a new four-credit training course approved by the
Texas Department of Insurance under Subsection (a) of this section;
or
(2) an additional one-time one-credit training course
approved by the Texas Department of Insurance and provided by a
continuing education provider approved by the Texas Department of
Insurance on appropriate sales practices, replacement, and
disclosure requirements.
SECTION 20. (a) Section 1107.055, Insurance Code, as
amended by this Act, applies only to an annuity contract delivered,
issued for delivery, or renewed on or after January 1, 2022. An
annuity contract delivered, issued for delivery, or renewed before
January 1, 2022, is governed by the law as it existed immediately
before the effective date of this Act, and that law is continued in
effect for that purpose.
(b) Chapter 1115, Insurance Code, as amended by this Act,
applies only to an annuity transaction that occurs on or after the
effective date of this Act. An annuity transaction that occurs
before the effective date of this Act is governed by the law as it
existed immediately before the effective date of this Act, and that
law is continued in effect for that purpose.
SECTION 21. This Act takes effect September 1, 2021.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 1777 was passed by the House on April
29, 2021, by the following vote: Yeas 144, Nays 1, 1 present, not
voting.
______________________________
Chief Clerk of the House
I certify that H.B. No. 1777 was passed by the Senate on May
19, 2021, by the following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor