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TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 7 TO CHAPTER 69, TITLE 38, SO AS TO ENACT THE "ANNUITY INVESTMENTS BY SENIORS ACT" TO PROVIDE STANDARDS AND PROCEDURES FOR RECOMMENDATIONS TO SENIOR CONSUMERS TO ENSURE THAT ANNUITY PRODUCTS FOR THESE SENIOR CONSUMERS ADDRESS THEIR INSURANCE AND FINANCIAL NEEDS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. (A) The purpose of this act is to provide standards and procedures for recommendations to senior consumers which result in a transaction involving annuity products to appropriately address the insurance needs and financial objectives of senior consumers at the time of the transaction.
(B) This act applies to any recommendation to purchase or exchange an annuity made to a senior consumer by an insurance agent, or an insurer where no agent is involved, that results in the purchase or exchange recommended.
(C) Nothing in this act may be construed to create or imply a private cause of action for a violation of this act.
SECTION 2. Chapter 69, Title 38 of the 1976 Code is amended by adding:
Section 38-69-510. This article is known as the 'Annuity Investments by Seniors Act'.
Section 38-69-520. For purposes of this article:
(1) 'Annuity' means a fixed annuity or variable annuity that is individually solicited, whether the product is classified as an individual annuity or a group annuity.
(2) 'Recommendation' means advice provided by an insurance agent, or an insurer if no insurance agent is involved, to an individual senior consumer which results in a purchase or exchange of an annuity in accordance with that advice.
(3) 'Senior consumer' means a person sixty-five years of age or older. If there is a joint purchase by more than one party, a purchaser is considered to be a senior consumer if any of the parties is age sixty-five or older.
Section 38-69-530. (A) In recommending to a senior consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, an insurance agent, or an insurer if no insurance agent is involved, has reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of the facts disclosed by the senior consumer as to his investments and other insurance products and as to his financial situation and needs.
(B) Before executing a purchase or exchange of an annuity resulting from a recommendation to a senior consumer, an insurance agent, or an insurer if no insurance agent is involved, shall make reasonable efforts to obtain information concerning the senior consumer's financial status, tax status, and investment objectives and such other information used or considered to be reasonable by the insurance agent, or the insurer if no agent is involved, in making the recommendation.
(C)(1) Except as provided in item (2), an insurance agent, or an insurer if no insurance agent is involved, may not have any obligation to a senior consumer as provided for in subsection (A) related to any recommendation if the senior consumer:
(a) refuses to provide relevant information requested by the insurer or insurance agent;
(b) decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance agent; or
(c) fails to provide complete or accurate information.
(2) An insurer or insurance agent's recommendation subject to item (1) must be reasonable under all the circumstances actually known to the insurer or insurance agent at the time of the recommendation.
(D)(1) An insurer or insurance agent shall ensure that a system to supervise recommendations that is designed to achieve compliance with this section is established and maintained by complying with the provisions of items (3), (4), and (5), or shall establish and maintain a system including, but not limited to:
(a) maintaining written procedures; or
(b) conducting periodic reviews of its records that are reasonably designed to assist in detecting and preventing violations of this section.
(2) A managing general agent and an insurance agency shall adopt a system established by an insurer to supervise recommendations of its insurance agents that is designed to achieve compliance with this section or shall establish and maintain a system including, but not limited to:
(a) maintaining written procedures; or
(b) conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this section.
(3) An insurer may contract with a third party, including a managing general agent or an insurance agency, to establish and maintain a system of supervision as required by item (1) with respect to insurance agents under contract with or employed by the third party.
(4) An insurer shall make reasonable inquiry to ensure that a third party contracting pursuant to the provisions of item (3) is performing the functions required by item (1) and shall take 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:
(a) annually obtaining a certification from a third party senior manager who has responsibility for the delegated functions that the manager has a reasonable basis to represent, and does represent, that the third party is performing the required functions; or
(b) based on reasonable selection criteria, periodically selecting third parties contracting pursuant to the provisions of item (3) for a review to determine whether the third parties are performing the required functions. The insurer shall perform any procedures necessary to conduct the review which are reasonable under the circumstances.
(5) An insurer that contracts with a third party pursuant to item (3) and complies with the requirements specified in item (4) is considered to have fulfilled its responsibilities provided by item (1).
(6) An insurer, a managing general agent, or an insurance agency is not required by items (1) or (2) to:
(a) review or provide for review of all transactions solicited by an insurance agent; or
(b) include in its system of supervision an insurance agent's recommendations to senior consumers of products other than the annuities offered by the insurer, managing general agent, or insurance agency.
(7) A managing general agent or an insurance agency contracting with an insurer pursuant to item (3) promptly shall provide, when requested by the insurer pursuant to item (4), a certification as described in item (4) or provide a clear statement that the managing general agent or insurance agency is unable to meet the certification criteria.
(8) A person may not provide a certification pursuant to the provisions of item (4)(a) unless the person is a senior manager with responsibility for the delegated functions and has a reasonable basis for making the certification.
Section 38-69-540. (A) The department may order an insurer to take reasonably appropriate corrective action for any senior consumer harmed by a violation of this article by the insurer or the insurer's insurance agent.
(B) The department may order:
(1) an insurance agent to take reasonably appropriate corrective action for any senior consumer harmed by a violation of this article by the insurance agent; or
(2) a managing general agency or an insurance agency that employs or contracts with an insurance agent to sell or solicit the sale of annuities to senior consumers to take reasonably appropriate corrective action for any senior consumer harmed by a violation of this article by the insurance agent.
(C) A violation of Section 38-69-530(A) or (B), or Section 38-69-530(C)(2) may be reduced or eliminated, according to a schedule adopted by the department if corrective action for the senior consumer was taken promptly after a violation was discovered.
Section 38-69-550. (A) An insurer, a managing general agent, an insurance agency, and an insurance agent shall maintain or be able to make available to the department records of the information collected from the senior consumer and other information used in making the recommendations that were the basis for insurance transactions for five 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 agent.
(B) Records required to be maintained by this article may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.
Section 38-69-560. Unless otherwise specifically included, this article does not apply to recommendations involving:
(1) direct-response solicitations where there is no recommendation based on information collected from the senior consumer pursuant to this article; and
(2) contracts used to fund:
(a) an employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act;
(b) a plan described by Internal Revenue Code Sections 401(a), 401(k), 403(b), 408(k), or 408(p), as defined in Section 12-6-40(A), if established or maintained by an employer;
(c) a government or church plan defined in Internal Revenue Code Section 414, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under Internal Revenue Code Section 457;
(d) a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;
(e) settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or
(f) prepaid funeral contracts.
Section 38-69-570. Compliance with the National Association of Securities Dealers Conduct Rules in effect on January 1, 2004, satisfies the requirements as provided by this article for the recommendation of variable annuities. This article does not limit the department's ability to enforce the provisions of this article with respect to an insurance agent, an insurance agency, and a managing general agent, or the department's ability to enforce the provisions of this article with respect to insurers."
SECTION 3. Nothing in this act may be construed to create or be the basis of a civil action. Nothing in this act may be construed as limiting settlement or adjustment of claims by methods that are otherwise permissible under state law.
SECTION 4. This act takes effect upon approval by the Governor.
This web page was last updated on Tuesday, June 23, 2009 at 2:53 P.M.