§ 627-3. Duties of insurers and insurance producers
Purdon's Pennsylvania Statutes and Consolidated StatutesTitle 40 P.S. InsuranceEffective: June 20, 2022
Effective: June 20, 2022
40 P.S. § 627-3
§ 627-3. Duties of insurers and insurance producers
(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. A producer has acted in the best interest of the consumer if the producer has satisfied the following obligations regarding care, disclosure, conflict of interest and documentation:
(iii) The requirements under subparagraph (i) 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. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation. Producers shall be held to standards applicable to producers with similar authority and licensure.
(v) The consumer profile information, characteristics of the insurer and product costs, rates, benefits and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs and financial objectives, but the level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.
(ix) The requirements under subparagraph (i) do not mean the producer has ongoing monitoring obligations under the care obligation under this paragraph, although the obligation may be separately owed under the terms of a fiduciary, consulting, investment advising or financial planning agreement between the consumer and the producer.
(xi) Nothing in this section should be construed to require a producer to obtain any license other than a producer license with the appropriate line of authority to sell, solicit or negotiate insurance in this State, including any securities license, in order to fulfill the duties and obligations contained in this article; provided the producer does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.
(D) A description of the sources and types of cash compensation and non-cash compensation to be received by the producer, including whether the producer 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 producer or by fee as a result of a contract for advice or consulting services.
(iii) Prior to or at the time of the recommendation 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 charge, 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.
(iii) Obtain a consumer signed statement on a form 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.
(5) Any requirement applicable to a producer under this subsection shall apply to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities, including providing or delivering marketing or educational materials, product wholesaling or other back office product support and general supervision of a producer do not, in and of themselves, constitute material control or influence.
(1) Except as permitted under subsection (b), 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 particular consumer's financial situation, insurance needs and financial objectives based on the consumer's consumer profile information.
(ii) The insurer shall establish and maintain standards for producer product training and shall establish and maintain reasonable procedures to require its insurance producers to comply with the requirements of section 403.1-B.1
(iv) The insurer shall establish and maintain procedures for the review of each recommendation before issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives. The review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means, including physical review. The electronic or other system may be designed to require additional review only for those transactions identified for additional review by the selection criteria.
(v) The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with subsections (a), (b), (d) and (e). This may include confirmation of consumers’ consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations and programs of internal monitoring. Nothing in this subparagraph shall prevent an insurer from complying with this subparagraph by applying sampling procedures or by confirming the consumer profile suitability information or other required information under this section after issuance or delivery of the annuity.
(viii) The insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses and non-cash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subparagraph are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits or other employee benefits by employees as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time.
(ix) The insurer shall annually provide a written report detailing its supervision system to senior management, including to the senior manager responsible for audit functions. The report shall include a description of the testing designed to determine the effectiveness of the supervision system, the exceptions found and corrective action taken or recommended, if any.
(3) Nothing in this subsection shall restrict an insurer from contracting for performance of a function, including maintenance of procedures, required under this subsection. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under section 406-B2 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with paragraph (4).
(1) All recommendations and sales made in compliance with comparable standards shall satisfy the requirements under this article. This subsection applies to recommendations and sales of annuities made by financial professionals in compliance with business rules, controls and procedures that satisfy a comparable standard even if the standard would not otherwise apply to the product or recommendation at issue. However, nothing in this subsection shall limit the commissioner's ability to investigate and enforce the provisions of this article.
(i) Monitor the relevant conduct of the financial professional seeking to rely on paragraph (1) or the entity responsible for supervising the financial professional, including the financial professional’s broker-dealer or investment adviser registered under Federal securities laws using information collected in the normal course of an insurer’s business.
(ii) Provide to the entity responsible for supervising the financial professional seeking to rely on paragraph (1), including the financial professional's broker-dealer or investment advisor registered under Federal securities laws, information and reports which are reasonably appropriate to assist the entity to maintain its supervision system.
(4) Nothing in this article shall exempt an insurer from the internal audit and compliance procedure requirements under section 405-A.3
(ii) With respect to investment advisers registered under Federal securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on the investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940 (54 Stat. 847, 15 U.S.C. § 80b-1 et. seq.), including the Form ADV and interpretations.
Credits
1921, May 17, P.L. 682, No. 284, art. IV-B, § 403-B, added 2010, March 22, P.L. 147, No. 14, § 2, effective in 180 days [Sept. 20, 2010]. Amended 2010, July 9, P.L. 362, No. 51, § 3, effective Sept. 24, 2010; 2018, June 28, P.L. 351, No. 48, § 3, effective in 180 days [Dec. 26, 2018]; 2021, Dec. 22, P.L. 472, No. 99, § 1, effective in 180 days [June 20, 2022].
40 P.S. § 627-3, PA ST 40 P.S. § 627-3
Current through Act 10 of the 2024 Regular Session. Some statute sections may be more current, see credits for details.
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