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R590.
Insurance, Administration. (Effective 8-8-07)
R590-93.
Replacement of Life Insurance and Annuities.
R590-93-1.
Authority.
This rule is
promulgated pursuant to Subsection 31A-2-201(3)(a) wherein the commissioner
may make rules to implement the provisions of Title 31A and pursuant to
Subsection 31A-23a-402(8), which allows the commissioner to define methods
of competition and acts and practices found to be unfair or deceptive.
R590-93-2.
Purpose and Scope.
(1) The
purpose of this rule is:
(a) to
regulate the activities of insurers and producers with respect to the
replacement of existing life insurance and annuities; and
(b) to
protect the interests of life insurance and annuity purchasers by
establishing minimum standards of conduct to be observed in replacement or
financed purchase transactions. It will:
(i) assure that purchasers
receive information with which a decision can be made in the purchaser's own
best interest;
(ii) reduce
the opportunity for misrepresentation and incomplete disclosure; and
(iii)
establish penalties for failure to comply with requirements of this rule.
(2) This
rule applies to all insurers and producers doing life insurance and annuity
transactions in this state.
(3)
Unless otherwise
specifically included, this rule shall not apply to transactions involving:
(a) credit
life insurance;
(b) group life insurance
or group annuities where there is no direct solicitation of individuals by
an insurance producer. Direct solicitation shall not include any group
meeting held by an insurance producer solely for the purpose of educating or
enrolling individuals or, when initiated by an individual member of the
group, assisting with the selection of investment options offered by a
single insurer in connection with enrolling that individual. Group life
insurance or group annuity certificates marketed through direct response
solicitation shall be subject to the provisions of Section R590-93-8;
(c) group
life insurance and annuities used to fund prearranged funeral contracts;
(d) an
application to the existing insurer that issued the existing policy or
contract when a contractual change or a conversion privilege is being
exercised; or, when the existing policy or contract is being replaced by the
same insurer pursuant to a program filed with and approved by the
commissioner or when a term conversion privilege is exercised among
corporate affiliates;
(e) proposed
life insurance that is to replace life insurance under a binding or
conditional receipt issued by the same company;
(f)(i)
policies or contracts used to fund:
(A) an
employee pension or welfare benefit plan that is covered by the Employee
Retirement and Income Security Act (ERISA);
(B) a plan
described by Sections 401(a), 401(k) or 403(b) of the Internal Revenue Code,
where the plan, for purposes of ERISA, is established or maintained by an
employer;
(C) a
governmental or church plan defined in Section 414, a governmental or church
welfare benefit plan, or a deferred compensation plan of a state or local
government or tax exempt organization under Section 457 of the Internal
Revenue Code; or
(D) a
nonqualified deferred compensation arrangement established or maintained by
an employer or plan sponsor.
(ii)
Notwithstanding Subsection (i), this rule shall apply to policies or
contracts used to fund any plan or arrangement that is funded solely by
contributions an employee elects to make, whether on a pre-tax or after-tax
basis, and where the insurer has been notified that plan participants may
choose from among two or more insurers and there is a direct solicitation of
an individual employee by an insurance producer for the purchase of a
contract or policy. As used in this subsection, direct solicitation shall
not include any group meeting held by an insurance producer solely for the
purpose of educating individuals about the plan or arrangement or enrolling
individuals in the plan or arrangement or, when initiated by an individual
employee, assisting with the selection of investment options offered by a
single insurer in connection with enrolling that individual employee;
(g) where
new coverage is provided under a life insurance policy or contract and the
cost is borne wholly by the insured's employer or by an association of which
the insured is a member;
(h) existing
life insurance that is a non-convertible term life insurance policy that
will expire in five years or less and cannot be renewed;
(i)
immediate annuities that are purchased with proceeds from an existing
contract. Immediate annuities purchased with proceeds from an existing
policy are not exempted from the requirements of this rule; or
(j)
structured settlements.
(4)
Registered contracts shall be exempt from the requirements of Subsections
R590-93-6(1)(c) and R590-93-7(2) with respect to the provision of
illustrations or policy summaries; however, premium or contract contribution
amounts and identification of the appropriate prospectus or offering
circular shall be required instead.
R590-93-3.
Definitions.
In addition
to the definitions of Section 31A-1-301, the following definitions shall
apply for the purposes of this rule.
(1)
"Direct-response solicitation" means a solicitation through a sponsoring or
endorsing entity or individually solely through mails, telephone, the
Internet or other mass communication media.
(2)
"Existing insurer" means the insurance company whose policy or contract is
or will be changed or affected in a manner described within the definition
of "replacement."
(3)
"Existing policy or contract" means an individual life insurance policy,
herein referred to as policy, or annuity contract, herein referred to as
contract, in force, including a policy under a binding or conditional
receipt or a policy or contract that is within an unconditional refund
period.
(4)
"Financed purchase" means the purchase of a new policy involving the actual
or intended use of funds obtained by the withdrawal or surrender of, or by
borrowing from values of an existing policy to pay all or part of any
premium due on the new policy. For purposes of a regulatory review of an
individual transaction only, if a withdrawal, surrender or borrowing
involving the policy values of an existing policy is used to pay premiums on
a new policy owned by the same policyholder and issued by the same company
within four months before or 13 months after the effective date of the new
policy, it will be deemed prima facie evidence of the policyholder's intent
to finance the purchase of the new policy with existing policy values. This
prima facie standard is not intended to increase or decrease the monitoring
obligations contained in Subsection R590-93-5(1)(e).
(5)
"Illustration" means a presentation or depiction that includes
non-guaranteed elements of a policy of life insurance over a period of years
as defined in R590-177, Life Insurance Illustrations Rule.
(6) "Notice" means Appendix A and Appendix C,
Important Notice: Replacement of Life Insurance or Annuities, and Appendix
B, Notice Regarding Replacement, from the National Association of Insurance
Commissioners, dated 2006
and which are incorporated herein by reference. The notice is to be made
available by the replacing insurer and must be imprinted with the name,
address, and telephone number of the replacing insurer.
(7)(a)
"Policy summary" for policies or contracts other than universal life
policies, means a written statement regarding a policy or contract which
shall contain to the extent applicable, but need not be limited to, the
following information:
(i) current
death benefit;
(ii) annual
contract premium;
(iii)
current cash surrender value;
(iv) current
dividend;
(v)
application of current dividend; and
(vi) amount
of outstanding loan.
(b) "Policy
summary" for universal life policies, means a written statement that shall
contain at least the following information:
(i) the
beginning and end date of the current report period;
(ii) the
policy value at the end of the previous report period and at the end of the
current report period;
(iii) the
total amounts that have been credited or debited to the policy value during
the current report period, identifying each by type, e.g., interest,
mortality, expense and riders;
(iv) the
current death benefit at the end of the current report period on each life
covered by the policy;
(v) the net
cash surrender value of the policy as of the end of the current report
period; and
(vi) the
amount of outstanding loans, if any, as of the end of the current report
period.
(8)
"Replacing insurer" means the insurance company that issues or proposes to
issue a new policy or contract that replaces an existing policy or contract
or is a financed purchase.
(9)
"Registered contract" means a variable annuity contract or variable life
insurance policy subject to the prospectus delivery requirements of the
Securities Act of 1933.
(10)
"Replacement" means a transaction in which a new policy or contract is to be
purchased, and it is known or should be known to the proposing producer, or
to the proposing insurer if there is no producer, that by reason of the
transaction, an existing policy or contract has been or is to be:
(a) lapsed,
forfeited, surrendered or partially surrendered, assigned to the replacing
insurer or otherwise terminated;
(b)
converted to reduced paid-up insurance, continued as extended term
insurance, or otherwise reduced in value by the use of nonforfeiture
benefits or other policy values;
(c) amended
so as to effect either a reduction in benefits or in the term for which
coverage would otherwise remain in force or for which benefits would be
paid;
(d) reissued
with any reduction in cash value; or
(e) used in
a financed purchase.
(11) "Sales
material" means a sales illustration and any other written, printed or
electronically presented information created, or completed or provided by
the company or producer and used in the presentation to the policy or
contract holder related to the policy or contract purchased.
R590-93-4.
Duties of Producers.
(1) A producer who initiates an application shall
submit to the insurer, with or as part of the application, a statement
signed by the applicant as to whether the applicant has existing
policies or contracts. If the answer is "no," the producer's duties with
respect to replacement are complete.
(2) If the applicant answered "yes" to the
question regarding existing coverage referred to in Subsection (1), the
producer shall present and read to the applicant, not later than at the time
of taking the application, the Notice regarding replacements in the form as
described in Appendix A or other substantially similar document filed with
the commissioner. However, a filing shall not
be required when amendments to the Notice are limited to the omission of
references not applicable to the product being sold or replaced. The Notice
shall be signed by both the applicant and the producer attesting that the
Notice has been read aloud by the producer or that the applicant did not
wish the Notice to be read aloud, in which case the producer need not have
read the Notice aloud, and left with the applicant. With respect to an
electronically completed application and Notice, the producer is not
required to leave a copy of the electronically completed Notice with the
applicant.
(3) The
Notice shall list each existing policy or contract contemplated to be
replaced, properly identified by name of insurer, the insured or annuitant,
and policy or contract number if available; and shall include a statement as
to whether each policy or contract will be replaced or whether a policy will
be used as a source of financing for the new policy or contract. If a policy
or contract number has not been issued by the existing insurer, alternative
identification, such as an application or receipt number, shall be listed.
(4) In
connection with a replacement transaction the producer shall leave with the
applicant at the time an application for a new policy or contract is
completed the original or a copy of all sales material. With respect to
electronically presented sales material, it shall be provided to the policy
or contract holder in printed form no later than at the time of policy or
contract delivery.
(5) Except
as provided in Subsection R590-93-6(3), in connection with a replacement
transaction the producer shall submit to the insurer to which an application
for a policy or contract is presented, a copy of each document required by
this section, a statement identifying any preprinted or electronically
presented company approved sales materials used, and copies of any
individualized sales materials, including any illustrations related to the
specific policy or contract purchased.
R590-93-5.
Duties of Insurers that Use Producers.
Each insurer
shall:
(1) maintain
a system of supervision and control to insure compliance with the
requirements of this rule that shall include at least the following:
(a) inform
its producers of the requirements of this rule and incorporate the
requirements of this rule into all relevant producer training manuals
prepared by the insurer;
(b) provide
to each producer a written statement of the company's position with respect
to the acceptability of replacements providing guidance to its producer as
to the appropriateness of these transactions;
(c) a system
to review the appropriateness of each replacement transaction that the
producer does not indicate is in accord with Subsection (b) above;
(d)
procedures to confirm that the requirements of this rule have been met;
(e)
procedures to detect transactions that are replacements of existing policies
or contracts by the existing insurer, but that have not been reported as
such by the applicant or producer. Compliance with this rule may include,
but shall not be limited to, systematic customer surveys, interviews,
confirmation letters, or programs of internal monitoring;
(2) have the
capacity to monitor each producer's life insurance policy and annuity
contract replacements for that insurer, and shall produce, upon request, and
make such records available to the department. The capacity to monitor shall
include the ability to produce records for each producer's:
(a) life
replacements, including financed purchases, as a percentage of the
producer's total annual sales for life insurance;
(b) number
of lapses of policies by the producer as a percentage of the producer's
total annual sales for life insurance;
(c) annuity
contract replacements as a percentage of the producer's total annual annuity
contract sales;
(d) number
of transactions that are unreported replacements of existing policies or
contracts by the existing insurer detected by the company's monitoring
system as required by Subsection R590-93-5(1)(e); and
(e)
replacements, indexed by replacing producer and existing insurer;
(3) require with or as a part of each application
for life insurance or an annuity a signed statement by the applicant as
to whether the applicant has existing policies or contracts;
(4) require
with each application for life insurance or annuity that indicates an
existing policy or contract, a completed Notice regarding replacements as
contained in Appendix A;
(5) when the
applicant has existing policies or contracts, each insurer shall be able to
produce copies of any sales material required by Subsection R590-93-4(5),
the basic illustration and any supplemental illustrations related to the
specific policy or contract that is purchased, and the producer's and
applicant's signed statements with respect to financing and replacement for
at least five years after the termination or expiration of the proposed
policy or contract;
(6)
ascertain that the sales material and illustrations required by Subsection
R590-93-4(5) of this rule meet the requirements of this rule and are
complete and accurate for the proposed policy or contract;
(7) if an
application does not meet the requirements of this rule, notify the producer
and applicant and fulfill the outstanding requirements; and
(8) maintain
records in any media or by any process that accurately reproduces the actual
document.
R590-93-6.
Duties of Replacing Insurers that Use Producers.
(1) Where a
replacement is involved in the transaction, the replacing insurer shall:
(a) verify
that the required forms are received and are in compliance with this rule;
(b) with
respect to an electronically completed Notice, the replacing insurer shall
send a printed copy of the electronically executed Notice to the applicant
within five working days of the date the Notice is received by the company;
(c) notify
any other existing insurer that may be affected by the proposed replacement
within five workin days of receipt of a completed application indicating
replacement or when the replacement is identified if not indicated on the
application, and mail a copy of the available illustration or the policy
summary for the proposed policy or disclosure document for the proposed
contract within five business days of a request from an existing insurer;
(d) be able to produce
copies of the notification regarding replacement required in Subsection
R590-93-4(2), indexed by producer, for at least five years or until the next
regular examination by the insurance department of a company's state of
domicile, whichever is later; and
(e) provide to the policy or contract holder
notice of the right to return the policy or contract within 30 calendar days of the delivery of the contract
and receive an unconditional full refund of all premiums or considerations
paid on it; such notice may be included in Appendix A or C. This subsection
does not preempt the requirements of 31A-22-423.
(2) In transactions where
the replacing insurer and the existing insurer are the same or subsidiaries
or affiliates under common ownership or control, allow credit for the period
of time that has elapsed under the replaced policy's or contract's
incontestability and suicide periods up to the face amount of the existing
policy or contract. With regard to financed purchases the credit may be
limited to the amount the face amount of the existing policy is reduced by
the use of existing policy values to fund the new policy or contract.
(3) If an
insurer prohibits the use of sales material other than that approved by the
company, as an alternative to the requirements made of an insurer pursuant
to Subsection R590-93-4(5) with regard to sales materials, the insurer may:
(a) require
with each application a statement signed by he
producer that:
(i)
represents that the producer used only company-approved sales material; and
(ii) states
that copies of all sales material were left with the applicant in accordance
with Subsection R590-93-4(4); and
(b) within
ten business days of the issuance of the policy or contract:
(i) notify
the applicant by sending a letter or by verbal communication with the
applicant by a person whose duties are separate from the marketing area of
the insurer, that the producer has represented that copies of all sales
material have been left with the applicant in accordance with Subsection
R590-93-4(4);
(ii) provide
the applicant with a toll free number to contact company personnel involved
in the compliance function if such is not the case; and
(iii) stress
the importance of retaining copies of the sales material for future
reference; and
(c) be able
to produce a copy of the letter or other verification in the policy file for
at least five years after the termination or expiration of the policy or
contract.
R590-93-7.
Duties of the Existing Insurer.
Where a replacement is
involved in the transaction, the existing insurer shall:
(1) retain and be able to
produce all replacement notifications received, indexed by replacing
insurer, for at least five years or until the conclusion of the next regular
examination conducted by the insurance department of its state of domicile,
whichever is later;
(2)
within 5 business days of a replacement notification send a letter to the policy
or contract holder of the right to receive information regarding the
existing policy or contract values including, if available, an in force
illustration or policy summary if an in force illustration cannot be
produced. The policy or contract information shall be provided within
five business days of receipt of the request from the policy or contract
holder; and
(3) upon receipt of a request to
borrow, surrender or withdraw any policy values, send a notice, advising the
policy holder that the release of policy values may affect the guaranteed
elements, non-guaranteed elements, face amount or surrender value of the
policy from which the values are released. The notice shall be sent directly to the policyholder if the check is sent
to anyone other than the policyholder. In the case of consecutive automatic
premium loans, the insurer is only required to send the notice at the time
of the first loan.
R590-93-8.
Duties of Insurers with Respect to Direct Response Solicitations.
(1) In the case of an
application that is initiated as a result of a direct response solicitation,
the insurer shall require, with or as part of each completed application for
a policy or contract, a statement asking whether the applicant, by applying
for the proposed policy or contract, intends to replace, discontinue or
change an existing policy or contract. If the applicant indicates a
replacement or change is not intended or if the applicant fails to respond
to the statement, the insurer shall send the applicant, with the policy or
contract, the Notice regarding replacement in Appendix B, or other
substantially similar form approved by the commissioner.
(2) If the
insurer has proposed the replacement or if the applicant indicates a
replacement is intended and the insurer continues with the replacement, the
insurer shall:
(a) provide to applicants or prospective
applicants with the policy or contract a Notice, as described in Appendix C,
or other substantially similar document filed with the commissioner. In
these instances the insurer may delete the references to the producer,
including the producer's signature, and references not applicable to the
product being sold or replaced, without having to file the document with the commissioner.
The insurer's obligation to obtain the applicant's signature shall be
satisfied if it can demonstrate that it has made a diligent effort to secure
a signed copy of the Notice referred to in this subsection. The requirement
to make a diligent effort shall be deemed satisfied if the insurer includes
in the mailing a self-addressed postage prepaid envelope with instructions
for the return of the signed Notice referred to in this section; and
(b) comply with the
requirements of Subsection R590-93-6(1)(c), if the applicant furnishes the
names of the existing insurers, and the requirements of Subsections
R590-93-6(1)(d), R590-93-6(1)(e), and R590-93-6(2).
R590-93-9.
Violations and Penalties.
(1) Any
failure to comply with this rule shall be considered a violation of
31A-23a-402. Examples of violations include:
(a) any
deceptive or misleading information set forth in sales material;
(b) failing
to ask the applicant in completing the application the pertinent questions
regarding existing
policies or contracts;
(c) the
intentional incorrect recording of an answer;
(d) advising an applicant
to respond negatively to any question regarding replacement in order to
prevent notice to the existing insurer; or
(e) advising
a policy or contract holder to write directly to the company in such a way
as to attempt to obscure the identity of the replacing producer or company.
(2) Policy and contract
holders have the right to replace existing life insurance policies or
annuity contracts after indicating in or as a part of applications for new
coverage that replacement is not their intention; however, patterns of such
action by policy or contract holders of the same producer shall be deemed
prima facie evidence of the producer's knowledge that replacement was
intended in connection with the identified transactions, and these patterns
of action shall be deemed prima facie evidence of the producer's intent to
violate this rule.
(3) Where it
is determined that the requirements of this rule have not been met, the
replacing insurer shall provide to the policy holder an in force
illustration if available or a policy summary for the replacement policy or
disclosure document for the replacement contract and the appropriate Notice
regarding replacements in Appendix A or C.
(4)
Violations of this rule shall subject the violators to penalties that may
include the revocation or suspension of a producer's or company's license,
monetary fines and the forfeiture of any commissions or compensation paid to
a producer as a result of the transaction in connection with which the
violations occurred. In addition, where the commissioner has determined that
the violations were material to the sale, the insurer may be required to
make restitution, restore policy or contract values and pay interest at the
legal rate as provided in Title 15 of the Utah Code on the amount refunded
in cash.
R590-93-10.
Relationship to Other Statutes and Rules.
If any
portion of this rule is inconsistent with any provision of any statute or
other rule dealing with life insurance or annuity marketing practices or
disclosure, said inconsistent portion shall be interpreted so as to provide
the greatest information or protection to the policyholder.
R590-93-11.
Severability.
If any
section, term, or provision of this rule shall be adjudged invalid for any
reason, such judgment shall not affect, impair or invalidate any other
section, term, or provision of this rule and the remaining sections, terms,
and provision shall be and remain in full force.
R590-93-12.
Enforcement Date.
The commissioner will begin enforcing this rule 45
calendar days after the effective date.
KEY: life
insurance, annuity replacement
Date of Enactment or Last Substantive Amendment: 8-8-2007
Notice of
Continuation: April 28, 2004
Authorizing,
and Implemented or Interpreted Law: 31A-2-201; 31A-23a-402
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