SB 772 — An Act amending the act of May 17, 1921 (P.L.682, No.284), known as The Insurance Company Law of 1921, in life insurance, further providing for standard nonforfeiture law for individual deferred annuities; and, in suitability of annuity transactions, further providing for definitions, for applicability and scope of article, for duties of insurers and insurance producers, for insurance producer training, for mitigation of responsibility, for recordkeeping and for enforcement.

HOUSE AMENDED PRIOR PRINTER'S NO.

912 THEPRINTER'S GENERALNO. ASSEMBLY OF PENNSYLVANIA SENATE BILL Session of 2021 No.

INTRODUCED1127 BYTHE DiSANTO,GENERAL STREET,ASSEMBLY MENSCH,OF PITTMAN,PENNSYLVANIA KANESENATE ANDBILL YUDICHAK,Session JUNEof 16, 2021 REFERREDNo. TO BANKING AND INSURANCE, JUNE 16, 2021 AN ACT Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An act relating to insurance;

amending,INTRODUCED revising,BY andDiSANTO, consolidatingSTREET, theMENSCH, lawPITTMAN, providingKANE, forYUDICHAK, theSTEFANO incorporationAND ofBREWSTER, insuranceJUNE companies,16, and2021 theAS regulation,REPORTED supervision,FROM andCOMMITTEE protectionON ofINSURANCE, homeHOUSE andOF foreignREPRESENTATIVES, insuranceAS companies,AMENDED, LloydsOCTOBER associations,4, reciprocal2021 andAN inter-insuranceACT exchanges,Amending and fire insurance rating bureaus, and the regulationact and supervision of insuranceMay carried17, by1921 such(P.L.682, companies,No.284), associations,entitled and"An exchanges,act includingrelating insuranceto carriedinsurance; by the State Workmen's Insurance Fund;

amending, revising, and consolidating the law providing for the incorporation of insurance companies, and the regulation, supervision, and protection of home and foreign insurance companies, Lloyds associations, reciprocal and inter-insurance exchanges, and fire insurance rating bureaus, and the regulation and supervision of insurance carried by such companies, the State Workmen's Insurance Fund;

and repealing existing laws," in life insurance, further providing for standard nonforfeiture law for individual deferred annuities;

and, in suitability of annuityidualannuity transactions, further providing for definitions, for applicability and scope of article, for duties of insurers and insurance producers, for insurance producer training, for mitigation of responsibility, for recordkeeping and for enforcement.

Sections 410C(d.1)(3)(C), 401-B, 402-B(a) and (b) (2), 403-B, 403.1-B(b), 404-B heading and (a), 405-B(a) and 406- <-- B heading AND 403-B of the act of May 17, 1921 (P.L.682, <-- No.284), known as The Insurance Company Law of 1921, are amended to read:

"Cash compensation." A discount, concession, fee, service fee, commission, sales charge, loan, override or cash benefit 20210SB0772PN1127 - 2 - received by a producer in connection with the recommendation or sale of an annuity from an insurer, intermediary or directly 20210SB0772PN0912 - 2 - from the consumer.

20210SB0772PN1127 - 3 - "Continuing education provider." An individual or entity approved to offer continuing education courses under section 20210SB0772PN0912 - 3 - 608-A of The Insurance Department Act of 1921.

<-- ["Insurance producer." A person who sells, solicits or negotiates contracts of insurance as defined in section 601-A of The Insurance Department Act of 1921.] "Insurer." A life insurance company licensed or required to be licensed under section 202 or a fraternal benefit society as defined in section 2403.

"Non-cash compensation." A form of compensation that is not 20210SB0772PN1127 - 4 - cash compensation, including health insurance, office rent, office support and retirement benefits.

20210SB0772PN0912 - 4 - "Non-guaranteed elements." The premiums, credited interest rates, including any bonus, benefits, values, dividends, non- interest based credits, charges or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue.

"Replace" or "replacement." The purchase of a new [policy or contract] annuity where it is known or should be known to the proposing producer, or to the proposing insurer [if there is no insurance producer] whether or not a producer is involved, that by reason of the transaction, an existing annuity or other insurance policy [or contract] has been or will be any of the 20210SB0772PN1127 - 5 - following:

(1) lapsed, forfeited, surrendered or partially 20210SB0772PN0912 - 5 - surrendered or assigned to the replacing insurer or otherwise terminated;

20210SB0772PN1127 - 6 - Section 402-B.

(a) General rule.--This article shall apply to any sale or 20210SB0772PN0912 - 6 - recommendation [to purchase or replace an annuity made to a consumer by an insurance producer, or an insurer where no producer is involved, that results in the purchase or replacement recommended] of an annuity.

[(v)] (3) Settlements of or assumptions of liabilities 20210SB0772PN1127 - 7 - associated with personal injury litigation or any dispute or claim resolution process.

20210SB0772PN0912 - 7 - [(vi)] (4) Formal prepaid funeral contracts.

(4) The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or replacement of the annuity, and riders and similar product enhancements, if any, are suitable and, in the case of a replacement, the transaction as a whole is 20210SB0772PN1127 - 8 - suitable for the consumer based on the consumer's suitability information.

20210SB0772PN0912 - 8 - (5) In the case of a replacement of an annuity, the replacement is suitable and shall take into consideration whether:

(c) Obligation limits.-- (1) Except as provided under paragraph (2), neither an insurance producer nor an insurer where no insurance producer is involved shall have any obligation to a consumer under 20210SB0772PN1127 - 9 - subsection (a) or (b.1) related to any annuity transaction if:

20210SB0772PN0912 - 9 - (i) No recommendation is made.

(d) Supervision of recommendations.-- 20210SB0772PN1127 - 10 - (1) An insurer shall establish a supervision system that is reasonably designed to achieve the insurer's and its 20210SB0772PN0912 - 10 - insurance producer's compliance with this article, including, but not limited to, the following:

(v) The insurer shall maintain reasonable procedures 20210SB0772PN1127 - 11 - to detect recommendations that are not suitable, including, but not limited to, confirmation of consumer 20210SB0772PN0912 - 11 - suitability information, systematic customer surveys, interviews, confirmation letters and programs of internal monitoring.

(ii) Annually obtaining a certification from a 20210SB0772PN1127 - 12 - senior manager who has responsibility for the contracted function that the senior manager has a reasonable basis 20210SB0772PN0912 - 12 - to represent, and does represent, that the function is properly performed.

20210SB0772PN1127 - 13 - (f) Internal audit and compliance procedures.--Nothing in this article shall exempt an insurer from the internal audit and 20210SB0772PN0912 - 13 - compliance procedure requirements under section 405-A.] (a) Best interest obligations.--A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer's or the insurer's financial interest ahead of the consumer's interest.

(ii) The requirements under subparagraph (i) include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation 20210SB0772PN1127 - 14 - of an annuity.

(iii) The requirements under subparagraph (i) 20210SB0772PN0912 - 14 - require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs and financial objectives.

(vi) The requirements under subparagraph (i) include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, including annuitization, death or living benefit or other 20210SB0772PN1127 - 15 - insurance-related features.

(vii) The requirements under subparagraph (i) apply 20210SB0772PN0912 - 15 - to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar producer PRODUCT enhancements, if any.

<-- (viii) The requirements under subparagraph (i) do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended.

(C) The consumer has had another annuity 20210SB0772PN1127 - 16 - exchange or replacement and, in particular, an exchange or replacement within the preceding 60 20210SB0772PN0912 - 16 - months.

20210SB0772PN1127 - 17 - (VI) Stocks and bonds.

20210SB0772PN0912 - 17 - (C) An affirmative statement describing the insurers the producer is authorized, contracted or appointed, or otherwise able to sell insurance products for, using the following descriptions:

(B) Whether the cash compensation is a one-time or multiple occurrence amount and, if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts 20210SB0772PN1127 - 18 - or percentages.

(iii) Prior to or at the time of the recommendation 20210SB0772PN0912 - 18 - or sale of an annuity, the producer shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, including the potential surrender period and surrender charger, potential tax penalty if the consumer sells, replaces, surrenders or annuitizes the annuity, mortality and expense fees, investment and advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitation on interest returns, POTENTIAL CHANGES IN NON-GUARANTEED ELEMENTS OF <-- THE ANNUITY, insurance and investment components and market risk.

(B) A customer's understanding of the ramifications of not providing his or her consumer 20210SB0772PN1127 - 19 - profile information or providing insufficient consumer profile information.

(iii) Obtain a consumer signed statement on a form 20210SB0772PN0912 - 19 - substantially similar to a model form established by the department and following the NAIC Model #275's Appendix C, acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the producer's recommendation.

(iii) A consumer refuses to provide relevant 20210SB0772PN1127 - 20 - consumer profile information and the annuity transaction is not recommended.