AB811: Bill Text

This bill makes various changes to the annuity transaction provisions. The bill adds types of information that an insurer or insurance intermediary must consider when determining whether a recommendation to a consumer for the purchase, exchange, or replacement of an annuity is suitable (suitability information), such as the consumer's risk tolerance, liquidity needs, intended use of the annuity, and financial time horizon. In addition, the bill requires that the consumer have been reasonably informed of various specified features of the annuity; that the consumer would benefit from certain features of the annuity, such as tax-deferred growth; that the annuity as a whole is suitable; and that, in the case of an exchange or replacement, the transaction as a whole is suitable for the particular consumer, including taking into account such things as whether the consumer will incur a surrender charge or be subject to increased fees. While the intermediary or insurer must still make reasonable efforts to obtain the consumer's suitability information before making a recommendation, an insurer is prohibited from issuing an annuity that is recommended unless it is reasonable to believe that the annuity is suitable, based on the consumer's suitability information. The bill requires an intermediary or insurer, at the time of a sale, to make a record of any recommendation that was made; to obtain the consumer's signature that he or she refused to provide suitability information, if that is the case; and to obtain a signed statement from the consumer that the consumer is entering into an annuity transaction that was not recommended by the insurer or intermediary, if that is the case. The bill prohibits an intermediary from dissuading, or attempting to dissuade, a consumer from truthfully responding to a request for confirmation of suitability information or from filing a complaint or from cooperating with the investigation of a complaint.

The bill expands on what is required for an insurer's system for supervising annuity transaction recommendations. Under the bill, an insurer must maintain reasonable procedures to inform intermediaries of the statutory requirements for annuity transactions, including incorporating the requirements into training manuals; establish standards for requiring intermediaries to comply with training requirements; provide intermediaries with product-specific training; maintain procedures for reviewing each recommendation before the issuance of an annuity to ensure that there is a reasonable basis to determine that a recommendation is suitable; and maintain reasonable procedures to detect recommendations that are not suitable.

The bill prohibits an intermediary from soliciting the sale of an annuity product unless the intermediary has adequate knowledge of the product to recommend it and establishes intermediary training requirements related to selling annuities. An intermediary who sells annuity products must complete a one-time training course that qualifies for at least four continuing education credits and that includes information on such topics as the types and classifications of annuities; how fixed, variable, and indexed annuity contract provisions affect consumers; taxation of annuities; appropriate sales practices; and disclosure requirements. Both the course and course provider, which must be registered as a continuing education provider in this state, must be approved by the commissioner. An insurer must verify that an intermediary has completed the course before allowing the intermediary to sell an annuity product for the insurer.

Under the bill, the commissioner retains the authority to promulgate rules to reduce or eliminate penalties for violations of the provisions if corrective action is promptly taken for the consumer. In addition, the commissioner may reduce or eliminate a penalty if the violation is not a part of a pattern or practice.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB811, s. 1 Section 1. 628.347 (title) of the statutes is amended to read:

AB811,3,3 628.347 (title) Suitability of in annuity sales to consumers transactions.

AB811, s. 2 Section 2. 628.347 (1) (a) of the statutes is amended to read:

AB811,3,7 628.347 (1) (a) "Annuity" means a fixed or variable annuity that is an insurance product that is individually solicited, whether the product is classified as an individual or group annuity.

AB811, s. 3 Section 3. 628.347 (1) (am) of the statutes is created to read:

AB811,3,10 628.347 (1) (am) "FINRA" means the Financial Industry Regulatory Authority or a succeeding agency.

AB811, s. 4 Section 4. 628.347 (1) (b) of the statutes is amended to read:

AB811,4,4 628.347 (1) (b) "Recommendation" means advice provided by an insurance intermediary, or an insurer if no intermediary is involved, to an individual consumer that results in the purchase or, exchange , or replacement of an annuity in accordance with that advice.

AB811, s. 5 Section 5. 628.347 (1) (d) of the statutes is created to read:

AB811,4,10 628.347 (1) (d) "Replacement" means a transaction in which a new annuity is to be purchased and it is known, or should be known to the proposing insurance intermediary, or to the proposing insurer if no intermediary is involved, that by reason of the transaction an existing policy or contract has been or is to be any of the following:

AB811,4,12 1. Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated.

AB811,4,15 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.

AB811,4,18 3. Amended so as to effect either a reduction in benefits or a reduction in the term for which coverage would otherwise remain in force or for which benefits would otherwise be paid.

AB811,4,19 4. Reissued with a reduction in cash value.

AB811,4,20 5. Used in a financed purchase.

AB811, s. 6 Section 6. 628.347 (1) (e) of the statutes is created to read:

AB811,4,24 628.347 (1) (e) "Suitability information" means information that is reasonably appropriate to determine the suitability of a recommendation, including all of the following:

AB811,4,25 1. Age.

AB811,5,1 2. Annual income.

AB811,5,3 3. Financial situation and needs, including the financial resources used for the funding of the annuity.

AB811,5,4 4. Financial experience.

AB811,5,5 5. Financial objectives.

AB811,5,6 6. Intended use of the annuity.

AB811,5,7 7. Financial time horizon.

AB811,5,8 8. Existing assets, including investment and life insurance holdings.

AB811,5,9 9. Liquidity needs.

AB811,5,10 10. Liquid net worth.

AB811,5,11 11. Risk tolerance.

AB811,5,12 12. Tax status.

AB811, s. 7 Section 7. 628.347 (2) (title) of the statutes is amended to read:

AB811,5,15 628.347 (2) (title) Duties of insurers and insurance intermediaries with regard to recommendations and issuance of annuities .

AB811, s. 8 Section 8. 628.347 (2) (a) of the statutes is renumbered 628.347 (2) (a) (intro.) and amended to read:

AB811,6,2 628.347 (2) (a) (intro.) Except as provided in par. (c), an insurance intermediary, or insurer if no intermediary is involved, may not recommend In recommending to a consumer the purchase of an annuity, or the exchange of an annuity if the recommendation that results in an insurance transaction or series of insurance transactions unless the, an insurance intermediary, or insurer has if no intermediary is involved, shall have reasonable grounds to believe that the recommendation is suitable for the consumer on the basis of facts disclosed by the consumer as to his or her investments, other insurance products, and financial situation and needs., including the consumer's suitability information, and that all of the following are true:

AB811, s. 9 Section 9. 628.347 (2) (a) 1. of the statutes is created to read:

AB811,6,9 628.347 (2) (a) 1. The consumer has been reasonably informed of various features of the annuity, such as the potential surrender period and surrender charge, 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.

AB811, s. 10 Section 10. 628.347 (2) (a) 2. of the statutes is created to read:

AB811,6,12 628.347 (2) (a) 2. The consumer would benefit from certain features of the annuity, such as tax-deferred growth, annuitization, or death or living benefit.

AB811, s. 11 Section 11. 628.347 (2) (a) 3. of the statutes is created to read:

AB811,6,18 628.347 (2) (a) 3. The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or exchange of the annuity, and riders and similar product enhancements, if any, are suitable, and in the case of an exchange or replacement, the transaction as a whole is suitable, for the particular consumer based on his or her suitability information.

AB811, s. 12 Section 12. 628.347 (2) (a) 4. of the statutes is created to read:

AB811,6,22 628.347 (2) (a) 4. In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable, including taking into consideration all of the following:

AB811,7,2 a. Whether the consumer 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 and similar product enhancements.

AB811,7,4 b. Whether the consumer would benefit from product enhancements and improvements.

AB811,7,6 c. Whether the consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 36 months.

AB811, s. 13 Section 13. 628.347 (2) (b) (intro.) of the statutes is renumbered 628.347 (2) (b) and amended to read:

AB811,7,12 628.347 (2) (b) Before making a recommendation described in par. (a), an insurance intermediary, or insurer if no intermediary is involved, shall make reasonable efforts to obtain the consumer's suitability information concerning all of the following:.

AB811, s. 14 Section 14. 628.347 (2) (b) 1. of the statutes is repealed.

AB811, s. 15 Section 15. 628.347 (2) (b) 2. of the statutes is repealed.

AB811, s. 16 Section 16. 628.347 (2) (b) 3. of the statutes is repealed.

AB811, s. 17 Section 17. 628.347 (2) (b) 4. of the statutes is repealed.

AB811, s. 18 Section 18. 628.347 (2) (bm) of the statutes is created to read:

AB811,7,21 628.347 (2) (bm) Except as permitted under par. (c), an insurer may not issue an annuity that is recommended by the insurer or its insurance intermediary to a consumer unless it is reasonable to believe that the annuity is suitable based on the consumer's suitability information.

AB811, s. 19 Section 19. 628.347 (2) (c) of the statutes is repealed and recreated to read:

AB811,7,25 628.347 (2) (c) 1. Subject to subd. 2., neither an insurance intermediary nor an insurer has any obligation to a consumer under par. (a) or (bm) related to any annuity transaction if any of the following applies:

AB811,8,2 a. Neither the insurance intermediary nor the insurer made a recommendation.

AB811,8,5 b. The insurance intermediary or insurer made a recommendation but the recommendation was later found to have been prepared based on inaccurate material information provided by the consumer.

AB811,8,7 c. The consumer refuses to provide relevant suitability information and the annuity transaction is not recommended.

AB811,8,9 d. The consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance intermediary.

AB811, s. 20 Section 20. 628.347 (2) (d) of the statutes is renumbered 628.347 (2) (c) 2. and amended to read:

AB811,8,16 628.347 (2) (c) 2. Any recommendation of an insurer or insurance intermediary that, under par. (c), is not subject to the obligation under par. (a) An insurer's issuance of an annuity under circumstances specified in subd. 1. a. to d. shall be reasonable under all circumstances actually known to the insurer or insurance intermediary at the time the recommendation is made annuity is issued.

AB811, s. 21 Section 21. 628.347 (2) (dm) of the statutes is created to read:

AB811,8,19 628.347 (2) (dm) An insurance intermediary, or insurer if no intermediary is involved, shall at the time of sale do all of the following:

AB811,8,20 1. Make a record of any recommendation subject to par. (a).

AB811,8,22 2. Obtain a customer-signed statement documenting a customer's refusal, if any, to provide suitability information.

AB811,9,2 3. If a customer decides to enter into an annuity transaction that is not based on the insurance intermediary's or insurer's recommendation, obtain a customer-signed statement acknowledging that the annuity transaction is not recommended by the intermediary or insurer.

AB811, s. 22 Section 22. 628.347 (3) of the statutes is repealed and recreated to read:

AB811,9,7 628.347 (3) Insurer's supervisory responsibility. (a) An insurer shall establish a supervision system that is reasonably designed to achieve the insurer's and its insurance intermediaries' compliance with this section. Under the system, the insurer shall do at least all of the following:

AB811,9,10 1. Maintain reasonable procedures to inform its insurance intermediaries of the requirements of this section and incorporate the requirements of this section into relevant insurance intermediary training manuals.

AB811,9,13 2. Establish standards for insurance intermediary product training and maintain reasonable procedures to require its insurance intermediaries to comply with the requirements of sub. (4m).

AB811,9,15 3. Provide product-specific training and training materials that explain all material features of its annuity products to its insurance intermediaries.

AB811,9,23 4. 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. An insurer's procedures may apply a screening system for the purpose of identifying selected transactions for additional review. An insurer's procedures may be accomplished electronically or through other means, including physical review. An electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.

AB811,9,25 5. Maintain reasonable procedures to detect recommendations that are not suitable, which may include confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters, and programs of internal monitoring. Nothing in this subdivision prevents an insurer from complying with this subdivision by applying sampling procedures or by confirming suitability information after issuance or delivery of the annuity, or both.

AB811,10,8 6. Annually provide a report to senior management, including to the senior manager responsible for audit functions, that details a review, with appropriate testing, that is reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

AB811,10,14 (b) 1. Nothing in this subsection restricts an insurer from contracting for the performance of a function required par. (a), including maintenance of procedures. An insurer is responsible for taking appropriate corrective action and may be subject to, sanctions and penalties under subs. (5) and (6), regardless of whether the insurer contracts for the performance of a function and regardless of the insurer's compliance with subd. 2.

AB811,10,16 2. An insurer's supervision system under par. (a) shall include supervision of any contractual performance under this subsection, including all of the following:

AB811,10,18 a. Monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed.

AB811,10,21 b. Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.

AB811,10,24 (c) An insurer is not required to include in its system of supervision an insurance intermediary's recommendations to consumers of products other than the annuities offered by the insurer.

AB811, s. 23 Section 23. 628.347 (3m) of the statutes is created to read:

AB811,11,3 628.347 (3m) Prohibited acts of intermediary. An insurance intermediary may not dissuade, or attempt to dissuade, a consumer from doing any of the following:

AB811,11,5 (a) Truthfully responding to an insurer's request for confirmation of suitability information.

AB811,11,6 (b) Filing a complaint.

AB811,11,7 (c) Cooperating with the investigation of a complaint.