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Pennsylvania Statutes Title 40 P.S. Insurance § 627-3. Duties of insurers and insurance producers

Current as of January 01, 2022 | Updated by FindLaw Staff

<Text of section effective until June 20, 2022. See also, text of 40 P.S. § 627-3 effective June 20, 2022.>

(a) General duties.--In making a recommendation to a consumer for the purchase or replacement of an annuity that results in another insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no insurance producer is involved, shall have reasonable grounds for believing that:

(1) The recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to the consumer's investments and other insurance products and as to the consumer's suitability information.

(2) The consumer has been reasonably 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 advisory fees, potential charges for and features of riders, limitations on interest returns, insurance and investment components and market risk.

(3) The consumer would benefit from certain features of the annuity, including tax-deferred growth, annuitization or death or living benefit.

(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 suitable for the consumer based on the consumer's suitability information.

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

(i) The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, including death, living or other contractual benefits, or be subject to increased fees, investment advisory fees or charges for riders and similar product enhancements.

(ii) The consumer would benefit from product enhancements and improvements.

(iii) The consumer has had another annuity replacement, including a replacement within the preceding 36 months.

(b) Consumer information.--Prior to the execution of a purchase or replacement of an annuity resulting from a recommendation, an insurance producer, or an insurer where no insurance producer is involved, shall make reasonable efforts to obtain the consumer's suitability information.

(b.1) Reasonable basis.--Except as permitted under subsection (c), an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity is suitable based on the consumer's suitability information.

(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 subsection (a) or (b.1) related to any annuity transaction if:

(i) No recommendation is made.

(ii) A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer.

(iii) A consumer refuses to provide relevant suitability information and the annuity transaction is not recommended.

(iv) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance producer.

(2) An insurer's issuance of an annuity subject to paragraph (1) shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.

(c.1) Documentation.--An insurance producer, or the responsible insurer representative if no insurance producer is involved, shall at the time of sale of an annuity:

(1) Make a record of each recommendation subject to subsection (a).

(2) Obtain a customer-signed statement documenting a customer's refusal to provide suitability information, if any.

(3) Obtain a customer-signed statement acknowledging that an annuity transaction is not recommended if the customer decides to enter into an annuity transaction that is not based on the insurance producer's or insurer's recommendation.

(d) Supervision of recommendations.--

(1) An insurer shall establish a supervision system that is reasonably designed to achieve the insurer's and its insurance producer's compliance with this article, including, but not limited to, the following:

(i) The insurer shall maintain reasonable procedures to inform its insurance producers of the requirements of this article and shall incorporate the requirements of this article into relevant insurance producer training manuals.

(ii) The insurer shall establish standards for insurance producer product training and maintain reasonable procedures to require its insurance producers to comply with the requirements of section 403.1-B.  1

(iii) The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its insurance producers.

(iv) The insurer shall maintain procedures for review of each recommendation before issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that a recommendation is suitable. 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, but not limited to, 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 maintain reasonable procedures to detect recommendations that are not suitable, including, but not limited to, confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters 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 suitability information after issuance or delivery of the annuity.

(vi) The insurer shall annually provide a 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 the corrective action taken or recommended, if any.

(2) Nothing in this subsection shall restrict an insurer from contracting for performance of a function, including maintenance of procedures, required under paragraph (1). An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under section 406-B  2 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with paragraph (3).

(3) An insurer's supervision system under paragraph (1) shall include supervision of contractual performance under paragraph (2), including, but not limited to, the following:

(i) Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed.

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

(4) An insurer is not required to include in its system of supervision an insurance producer's recommendations to consumers for products other than the annuities offered by the insurer.

(d.1) Dissuasion.--An insurance producer may not dissuade, or attempt to dissuade, a consumer from:

(1) Truthfully responding to an insurer's request for confirmation of suitability information.

(2) Filing a complaint.

(3) Cooperating with the investigation of a complaint.

(e) Compliance with other rules.--Sales made in compliance with FINRA requirements pertaining to suitability and supervision of annuity transactions shall satisfy the requirements under this section. This subsection applies to FINRA broker-dealer sales of annuities if the suitability and supervision is similar to those applied to variable annuity sales. However, nothing in this subsection shall limit the commissioner's ability to enforce or investigate the provisions of this article. For this subsection to apply, an insurer shall:

(1) Monitor the FINRA member broker-dealer using information collected in the normal course of an insurer's business.

(2) Provide to the FINRA member broker-dealer information and reports which are reasonably appropriate to assist the FINRA member broker-dealer to maintain its supervision system.

(f) Internal audit and compliance procedures.--Nothing in this article shall exempt an insurer from the internal audit and compliance procedure requirements under section 405-A.  3

1 40 P.S. § 627-3.1.
2 40 P.S. § 627-6.
3 40 P.S. § 625-5.
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Cite this article: FindLaw.com - Pennsylvania Statutes Title 40 P.S. Insurance § 627-3. Duties of insurers and insurance producers - last updated January 01, 2022 | https://codes.findlaw.com/pa/title-40-ps-insurance/pa-st-sect-40-627-3/

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