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SB-0880, As Passed House, September 7, 2006

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 880

A bill to amend 1956 PA 218, entitled

"The insurance code of 1956,"

(MCL 500.100 to 500.8302) by adding chapter 41A.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

CHAPTER 41A

ANNUITY RECOMMENDATION TO CONSUMERS

Sec. 4151. As used in this chapter:

(a) "Annuity" means a fixed annuity or variable annuity that

is individually solicited, whether the product is classified as an

individual or group annuity.

(b) "Insurance producer" or "producer" means insurance

producer as defined in section 1201 and includes a business entity

described in section 1205(2) that is licensed as an insurance

producer under this act.

producer, or an insurer where no producer is involved, to an

individual consumer that results in a purchase or exchange of an

annuity in accordance with that advice.

Sec. 4153. (1) This chapter applies to any recommendation to

purchase or exchange an annuity made to a consumer by an insurance

producer, or an insurer where no producer is involved, that results

in the purchase or exchange recommended.

(2) This chapter does not apply to any recommendation to

purchase or exchange an annuity involving any of the following:

(a) Direct response solicitations where there is no

recommendation based on information collected from the consumer.

(b) Contracts used to fund any of the following:

(i) An employee pension or welfare benefit plan that is covered

by the employee retirement and income security act, Public Law 93-

406.

(ii) A plan described by 26 USC 401(a), 26 USC 401(k), 26 USC

403(b), 26 USC 408(k), or 26 USC 408(p), if established or

maintained by an employer.

(iii) A government or church plan defined in 26 USC 414, a

government or church welfare benefit plan, or a deferred

compensation plan of a state or local government or tax exempt

organization under 26 USC 457.

(iv) A nonqualified deferred compensation arrangement

established or maintained by an employer or plan sponsor.

(v) Settlements of or assumptions of liabilities associated

with personal injury litigation or any dispute or claim resolution

process.

(vi) Formal prepaid funeral contracts.

Sec. 4155. (1) 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

insurance producer, or the insurer where no producer is involved,

shall have reasonable grounds for believing that the recommendation

is suitable for the consumer on the basis of the facts disclosed by

the consumer as to his or her investments and other insurance

products and as to his or her financial situation and needs.

(2) Prior to the execution of a purchase or exchange of an

annuity resulting from a recommendation, an insurance producer, or

an insurer where no producer is involved, shall make reasonable

efforts to obtain all of the following information:

(a) The consumer's financial status.

(b) The consumer's tax status.

(d) Such other information used or considered to be reasonable

by the insurance producer, or the insurer where no producer is

involved, in making recommendations to the consumer.

(3) Except as provided under subsection (4), neither an

insurance producer, nor an insurer where no producer is involved,

shall have any obligation to a consumer under subsection (1)

related to any recommendation if a consumer does any of the

following:

(a) Refuses to provide relevant information requested by the

insurer or insurance producer.

(b) Decides to enter into an insurance transaction that is not

based on a recommendation of the insurer or insurance producer.

(4) An insurer or insurance producer's recommendation subject

to subsection (1) shall be reasonable under all the circumstances

actually known to the insurer or insurance producer at the time of

the recommendation.

Sec. 4157. (1) An insurer either shall assure that a system to

supervise recommendations that is reasonably designed to achieve

compliance with this chapter is established and maintained by

complying with subsections (3) to (5), or shall establish and

maintain such a system, including, but not limited to, maintaining

written procedures and conducting periodic reviews of its records

that are reasonably designed to assist in detecting and preventing

violations of this chapter.

(2) An insurance producer either shall adopt a system

established by an insurer to supervise recommendations of its

insurance producers that is reasonably designed to achieve

compliance with this chapter, or shall establish and maintain such

a system, including, but not limited to, maintaining written

procedures and conducting periodic reviews of records that are

reasonably designed to assist in detecting and preventing

violations of this chapter.

(3) An insurer may contract with a third party, including an

insurance producer, to establish and maintain a system of

supervision as required under subsection (1) of insurance producers

under contract with or employed by the third party.

(4) An insurer shall make reasonable inquiry to assure that

the third party contracting under subsection (3) is performing the

functions required under subsection (1) and shall take such action

as is reasonable under the circumstances to enforce the contractual

obligation to perform the functions. An insurer may comply with its

obligation to make reasonable inquiry by doing all of the

following:

(a) By annually obtaining a certification from a third party

senior manager that the third party contracting under subsection

(3) is performing the required functions. Only a person who is a

senior manager with responsibility for the delegated functions and

who has a reasonable basis for making the certification shall

provide a certification under this subdivision.

(b) By periodically selecting, based on reasonable selection

criteria, third parties contracting under subsection (3) for a

review to determine whether the third parties are performing the

required functions. The insurer shall perform those procedures to

conduct the review that are reasonable under the circumstances.

(5) An insurer that contracts with a third party pursuant to

subsection (3) and that complies with the requirements to supervise

under subsection (4) will be considered to have met its

responsibilities under subsection (1).

(6) An insurer or insurance producer is not required under

subsection (1) or (2) to do any of the following:

(a) Review, or provide for review of, all insurance producer

solicited transactions.

(b) Include in its system of supervision an insurance

producer's recommendations to consumers of products other than the

annuities offered by the insurer or insurance producer.

(7) An insurance producer contracting with an insurer pursuant

to subsection (3) shall promptly, when requested by the insurer

pursuant to subsection (4), give a certification as described in

subsection (4) or give a clear statement that it is unable to meet

the certification criteria.

Sec. 4163. (1) An insurer and an insurance producer shall

maintain or be able to make available to the commissioner records

of the information collected from the consumer and other

information used in making the recommendations that were the basis

for insurance transactions for 5 years after the insurance

transaction is completed by the insurer. An insurer is permitted,

but is not required, to maintain documentation on behalf of an

insurance producer.

(2) Records required to be maintained by this chapter may be

maintained in paper, photographic, microprocess, magnetic,

mechanical, or electronic media or by any process that accurately

reproduces the actual document.

Sec. 4165. An insurer or insurance producer that complies with

the national association of securities dealers rules "NASD Manual,

Conduct Rules section 2310 (CCH, 1966)" or rules at least as

stringent as section 2310 pertaining to suitability satisfies this

chapter's requirements for the recommendation of variable

annuities.