LRB-4281/1
PJK:cjs:ph
2009 - 2010 LEGISLATURE
February 26, 2010 - Introduced by Senator Wirch, cosponsored by Representatives
Cullen, Molepske Jr., Turner and A. Williams. Referred to Committee on
Small Business, Emergency Preparedness, Technical Colleges, and Consumer
Protection.
SB572,1,11 1An Act to repeal 628.347 (2) (b) 1., 628.347 (2) (b) 2., 628.347 (2) (b) 3., 628.347
2(2) (b) 4. and 628.347 (6) (b); to renumber 628.347 (7); to renumber and
3amend
628.347 (2) (a), 628.347 (2) (b) (intro.), 628.347 (2) (d) and 628.347 (4);
4to amend 628.347 (title), 628.347 (1) (a), 628.347 (1) (b), 628.347 (2) (title),
5628.347 (5) (intro.), 628.347 (6) (c) and 628.347 (8) (intro.); to repeal and
6recreate
628.347 (2) (c), 628.347 (3) and 628.347 (4) (title); and to create
7628.347 (1) (am), 628.347 (1) (d), 628.347 (1) (e), 628.347 (2) (a) 1., 628.347 (2)
8(a) 2., 628.347 (2) (a) 3., 628.347 (2) (a) 4., 628.347 (2) (bm), 628.347 (2) (dm),
9628.347 (3m), 628.347 (4) (b), 628.347 (4) (c), 628.347 (4m), 628.347 (5) (d) and
10628.347 (7) (b) of the statutes; relating to: suitability of annuity contracts and
11granting rule-making authority.
Analysis by the Legislative Reference Bureau
Under current law, an insurance intermediary (intermediary), or insurer if no
intermediary is involved, may not recommend to a consumer the purchase of an
annuity, or recommend to a consumer the exchange of an annuity that results in an
insurance transaction, unless the intermediary or insurer has reasonable grounds

to believe that the recommendation is suitable for the consumer based on facts
disclosed by the consumer as to his or her investments, other insurance products, and
financial situation and needs. Before making a recommendation, the intermediary
or insurer must make reasonable efforts to obtain information from the consumer
about his or her financial status, tax status, and investment objectives. Current law
requires insurers to have a system for supervising annuity transaction
recommendations and provides certain requirements with which the supervisory
system must comply. The commissioner of insurance (commissioner) may order an
insurer or intermediary to take corrective action if a consumer is harmed by a
violation of the provisions regulating annuity transaction recommendations, and the
commissioner may promulgate rules to reduce or eliminate penalties for violations
of the provisions if, after a violation is discovered, corrective action is promptly taken
for the consumer.
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:
SB572, s. 1 1Section 1. 628.347 (title) of the statutes is amended to read:
SB572,3,3 2628.347 (title) Suitability of in annuity sales to consumers
3transactions.
SB572, s. 2 4Section 2. 628.347 (1) (a) of the statutes is amended to read:
SB572,3,75 628.347 (1) (a) "Annuity" means a fixed or variable annuity that is an insurance
6product that is
individually solicited, whether the product is classified as an
7individual or group annuity.
SB572, s. 3 8Section 3. 628.347 (1) (am) of the statutes is created to read:
SB572,3,109 628.347 (1) (am) "FINRA" means the Financial Industry Regulatory Authority
10or a succeeding agency.
SB572, s. 4 11Section 4. 628.347 (1) (b) of the statutes is amended to read:
SB572,4,4
1628.347 (1) (b) "Recommendation" means advice provided by an insurance
2intermediary, or an insurer if no intermediary is involved, to an individual consumer
3that results in the purchase or, exchange , or replacement of an annuity in accordance
4with that advice.
SB572, s. 5 5Section 5. 628.347 (1) (d) of the statutes is created to read:
SB572,4,106 628.347 (1) (d) "Replacement" means a transaction in which a new annuity is
7to be purchased and it is known, or should be known to the proposing insurance
8intermediary, or to the proposing insurer if no intermediary is involved, that by
9reason of the transaction an existing policy or contract has been or is to be any of the
10following:
SB572,4,1211 1. Lapsed, forfeited, surrendered or partially surrendered, assigned to the
12replacing insurer, or otherwise terminated.
SB572,4,1513 2. Converted to reduced paid-up insurance, continued as extended term
14insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other
15policy values.
SB572,4,1816 3. Amended so as to effect either a reduction in benefits or a reduction in the
17term for which coverage would otherwise remain in force or for which benefits would
18otherwise be paid.
SB572,4,1919 4. Reissued with a reduction in cash value.
SB572,4,2020 5. Used in a financed purchase.
SB572, s. 6 21Section 6. 628.347 (1) (e) of the statutes is created to read:
SB572,4,2422 628.347 (1) (e) "Suitability information" means information that is reasonably
23appropriate to determine the suitability of a recommendation, including all of the
24following:
SB572,4,2525 1. Age.
SB572,5,1
12. Annual income.
SB572,5,32 3. Financial situation and needs, including the financial resources used for the
3funding of the annuity.
SB572,5,44 4. Financial experience.
SB572,5,55 5. Financial objectives.
SB572,5,66 6. Intended use of the annuity.
SB572,5,77 7. Financial time horizon.
SB572,5,88 8. Existing assets, including investment and life insurance holdings.
SB572,5,99 9. Liquidity needs.
SB572,5,1010 10. Liquid net worth.
SB572,5,1111 11. Risk tolerance.
SB572,5,1212 12. Tax status.
SB572, s. 7 13Section 7. 628.347 (2) (title) of the statutes is amended to read:
SB572,5,1514 628.347 (2) (title) Duties of insurers and insurance intermediaries with
15regard to recommendations
and issuance of annuities .
SB572, s. 8 16Section 8. 628.347 (2) (a) of the statutes is renumbered 628.347 (2) (a) (intro.)
17and amended to read:
SB572,6,218 628.347 (2) (a) (intro.) Except as provided in par. (c), an insurance
19intermediary, or insurer if no intermediary is involved, may not recommend
In
20recommending
to a consumer the purchase of an annuity, or the exchange of an
21annuity if the recommendation that results in an insurance transaction or series of
22insurance transactions unless the, an insurance intermediary, or insurer has if no
23intermediary is involved, shall have
reasonable grounds to believe that the
24recommendation is suitable for the consumer on the basis of facts disclosed by the
25consumer as to his or her investments, other insurance products, and financial

1situation and needs., including the consumer's suitability information, and that all
2of the following are true:
SB572, s. 9 3Section 9. 628.347 (2) (a) 1. of the statutes is created to read:
SB572,6,94 628.347 (2) (a) 1. The consumer has been reasonably informed of various
5features of the annuity, such as the potential surrender period and surrender charge,
6potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the
7annuity, mortality and expense fees, investment advisory fees, potential charges for
8and features of riders, limitations on interest returns, insurance and investment
9components, and market risk.
SB572, s. 10 10Section 10. 628.347 (2) (a) 2. of the statutes is created to read:
SB572,6,1211 628.347 (2) (a) 2. The consumer would benefit from certain features of the
12annuity, such as tax-deferred growth, annuitization, or death or living benefit.
SB572, s. 11 13Section 11. 628.347 (2) (a) 3. of the statutes is created to read:
SB572,6,1814 628.347 (2) (a) 3. The particular annuity as a whole, the underlying
15subaccounts to which funds are allocated at the time of purchase or exchange of the
16annuity, and riders and similar product enhancements, if any, are suitable, and in
17the case of an exchange or replacement, the transaction as a whole is suitable, for the
18particular consumer based on his or her suitability information.
SB572, s. 12 19Section 12. 628.347 (2) (a) 4. of the statutes is created to read:
SB572,6,2220 628.347 (2) (a) 4. In the case of an exchange or replacement of an annuity, the
21exchange or replacement is suitable, including taking into consideration all of the
22following:
SB572,7,223 a. Whether the consumer will incur a surrender charge, be subject to the
24commencement of a new surrender period, lose existing benefits, such as death,

1living, or other contractual benefits, or be subject to increased fees, investment
2advisory fees, or charges for riders and similar product enhancements.
SB572,7,43 b. Whether the consumer would benefit from product enhancements and
4improvements.
SB572,7,65 c. Whether the consumer has had another annuity exchange or replacement
6and, in particular, an exchange or replacement within the preceding 36 months.
SB572, s. 13 7Section 13. 628.347 (2) (b) (intro.) of the statutes is renumbered 628.347 (2)
8(b) and amended to read:
SB572,7,129 628.347 (2) (b) Before making a recommendation described in par. (a), an
10insurance intermediary, or insurer if no intermediary is involved, shall make
11reasonable efforts to obtain the consumer's suitability information concerning all of
12the following:
.
SB572, s. 14 13Section 14. 628.347 (2) (b) 1. of the statutes is repealed.
SB572, s. 15 14Section 15. 628.347 (2) (b) 2. of the statutes is repealed.
SB572, s. 16 15Section 16. 628.347 (2) (b) 3. of the statutes is repealed.
SB572, s. 17 16Section 17. 628.347 (2) (b) 4. of the statutes is repealed.
SB572, s. 18 17Section 18. 628.347 (2) (bm) of the statutes is created to read:
SB572,7,2118 628.347 (2) (bm) Except as permitted under par. (c), an insurer may not issue
19an annuity that is recommended by the insurer or its insurance intermediary to a
20consumer unless it is reasonable to believe that the annuity is suitable based on the
21consumer's suitability information.
SB572, s. 19 22Section 19. 628.347 (2) (c) of the statutes is repealed and recreated to read:
SB572,7,2523 628.347 (2) (c) 1. Subject to subd. 2., neither an insurance intermediary nor an
24insurer has any obligation to a consumer under par. (a) or (bm) related to any annuity
25transaction if any of the following applies:
SB572,8,2
1a. Neither the insurance intermediary nor the insurer made a
2recommendation.
SB572,8,53 b. The insurance intermediary or insurer made a recommendation but the
4recommendation was later found to have been prepared based on inaccurate
5material information provided by the consumer.
SB572,8,76 c. The consumer refuses to provide relevant suitability information and the
7annuity transaction is not recommended.
SB572,8,98 d. The consumer decides to enter into an annuity transaction that is not based
9on a recommendation of the insurer or the insurance intermediary.
SB572, s. 20 10Section 20. 628.347 (2) (d) of the statutes is renumbered 628.347 (2) (c) 2. and
11amended to read:
SB572,8,1612 628.347 (2) (c) 2. Any recommendation of an insurer or insurance intermediary
13that, under par. (c), is not subject to the obligation under par. (a)
An insurer's
14issuance of an annuity under circumstances specified in subd. 1. a. to d.
shall be
15reasonable under all circumstances actually known to the insurer or insurance
16intermediary
at the time the recommendation is made annuity is issued.
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