BILL NUMBER: SB 620 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 13, 2003
AMENDED IN SENATE APRIL 29, 2003
AMENDED IN SENATE APRIL 21, 2003
INTRODUCED BY Senator Scott
FEBRUARY 20, 2003
An act to amend Sections 787, 10127.10, 10127.13, and 10509.8 of,
and to add Sections 789.9, 789.10, 1724, 1749.8, 10127.17, and
10127.18 to, the Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 620, as amended, Scott. Annuities: life insurance: required
disclosures and prohibited sales practices.
Existing law imposes a special duty of honesty, good faith, and
fair dealing on an insurer, broker, agent, and all others engaged in
the transaction of insurance with a prospective insured who is 65
years of age or older, except for specified types of insurance
transactions. Under existing law, the Insurance Commissioner is
authorized to assess an administrative penalty for the violation of
this duty and other provisions relating to senior insurance.
Existing law establishes a 30-day period following the purchase of an
individual life insurance policy or an individual annuity contract
by a senior citizen, during which time the policy or contract may be
canceled and all premiums and fees refunded, and requires certain
disclosures in that regard.
Existing law regulates viatical settlements, as defined, and
imposes certain requirements on a person entering into or soliciting
viatical settlements.
This bill would enact additional restrictions on advertising
practices that target senior citizens and would expand the scope of
existing restrictions, currently applicable to disability insurance,
to insurance settlements and life insurance,
annuity products. The bill would establish a
presumption that the issuance and delivery of a deferred annuity
product to a senior is unsuitable under certain conditions, and would
require an issuer of annuities to develop a suitability
plan for its agents to use in selling annuities. The bill would
prohibit insurance agents, brokers, and solicitors who are not
attorneys from sharing commissions or other compensation with
attorneys who are not insurance agents . The bill
would require specific training and continuing education for
insurance agents, brokers, and representatives in order for these
producers to sell annuities. The bill would revise the disclosure
requirements applicable to the sale of life insurance and annuity
products to seniors, and would impose certain additional disclosure
requirements applicable to insurance settlements
life insurance policies and annuities . The bill would
impose restrictions on the sale of life insurance policies and
annuities and insurance settlements in the
home of a senior citizen. The bill would prohibit an agent or
insurer from recommending the unnecessary replacement, as defined, of
an annuity by a senior citizen. The bill would impose certain
duties on the Insurance Commissioner in this regard, and enact other
related provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 787 of the Insurance Code is amended to read:
787. Any advertisement or other device designed to produce leads
based on a response from a potential insured which is directed
towards persons age 65 or older shall disclose that an agent may
contact the applicant if that is the fact. In addition, an agent who
makes contact with a person as a result of acquiring that person's
name from a lead generating device shall disclose that fact in the
initial contact with the person.
(a) No insurer, agent, broker, solicitor, or other person or other
entity shall solicit persons age 65 and older in this state for the
purchase of disability insurance, insurance settlements
life insurance , or annuities through the use of
a true or fictitious name which is deceptive or misleading with
regard to the status, character, or proprietary or representative
capacity of the entity or person, or to the true purpose of the
advertisement.
(b) For the purposes of this section, an advertisement includes
envelopes, stationery, business cards, or other materials designed to
describe and encourage the purchase of a policy or certificate of
disability insurance, an insurance settlement
life insurance , or an annuity.
(c) Advertisements shall not employ words, letters, initials,
symbols, or other devices which are so similar to those used by
governmental agencies, a nonprofit or charitable institution, senior
organization, or other insurer that they could have the capacity or
tendency to mislead the public. Examples of such
misleading materials, include, but are not limited to, those which
imply any of the following:
(1) The advertised coverages are somehow provided by or are
endorsed by any governmental agencies, nonprofit or charitable
institution or senior organizations.
(2) The advertiser is the same as, is connected with, or is
endorsed by governmental agencies, nonprofit or charitable
institutions or senior organizations.
(d) No advertisement may use the name of a state or political
subdivision thereof in a policy name or description.
(e) No advertisement may use any name, service mark, slogan,
symbol, or any device in any manner that implies that the insurer, or
the policy or certificate advertised, or that any agency who may
call upon the consumer in response to the advertisement, is connected
with a governmental agency, such as the Social Security
Administration.
(f) No advertisement may imply that the reader may lose a right,
or privilege, or benefits under federal, state, or local law if he or
she fails to respond to the advertisement.
(g) An insurer, agent, broker, or other entity may not use an
address so as to mislead or deceive as to the true identity,
location, or licensing status of the insurer, agent, broker, or other
entity.
(h) No insurer may use, in the trade name of its insurance policy
or certificate, any terminology or words so similar to the name of a
governmental agency or governmental program as to have the capacity
or the tendency to confuse, deceive, or mislead a prospective
purchaser.
(i) All advertisements used by agents, producers, brokers,
solicitors, or other persons for a policy of an insurer shall have
written approval of the insurer before they may be used.
(j) No insurer, agent, broker, or other entity may solicit a
particular class by use of advertisements which state or imply that
the occupational or other status as members of the class entitles
them to reduced rates on a group or other basis when, in fact, the
policy or certificate being advertised is sold on an individual basis
at regular rates.
(k) No advertisement for an event designed to promote the sale of
insurance products or settlements or to produce leads for future
sales of insurance products or settlements may use the terms
"seminar," "class," "informational meeting," or substantially
equivalent terms to characterize the purpose of the public gathering
or event unless it adds the words "and sales presentation"
immediately following those terms in the same font as those terms.
(l) No agent, broker, solicitor, or other person or entity may use
a professional designation unless that designation is conferred by
an accredited college or university or conferred by a long-standing
professional trade association that is nonprofit and not controlled
by founding individuals.
(m) License information in an advertisement shall be listed
immediately prior to, and in the same font as, any professional
designation.
SEC. 2. Section 789.9 is added to the Insurance Code, to read:
789.9. (a) Insurers owe a special duty of suitability to seniors
65 years and older who apply for or own annuity products.
(b) The commissioner shall presume the issuance and delivery of a
deferred annuity product to a senior is unsuitable and a violation of
this article unless the insurer is able to demonstrate the
suitability of the product for the individual senior.
(c)
(b) If the senior's purpose in purchasing the
any annuity is to affect Medi-Cal eligibility,
the issuance shall be unsuitable if the purchaser's assets are equal
to or less than the community spouse resource allowance ,
established annually by the State Department of Health Services
pursuant to the Medi-Cal Act (Chapter 7 (commencing with Section
14000) of Part 3 of Division 9 of the Welfare and Institutions Code
.
SEC. 3. Section 789.10 is added to the Insurance Code, to read:
789.10. (a) Each issuer of annuities shall develop a suitability
plan applicable to seniors 65 years of age and older, and train its
agents to use this plan.
(b) The plan shall utilize criteria, including, but not limited
to, the following: the age of purchaser, insured, or annuitant; his
or her competence to contract; his or her purpose in purchasing the
annuity product; the likelihood the senior will need access to cash
for future needs such as health care, long-term care, or other
emergencies; the likelihood that those needs may occur during the
period surrender charges would be assessed; and the likelihood the
senior may need access to the annuitized funds to meet those needs.
(c) Each insurer who receives an application from a senior for a
deferred annuity shall, before issuing the contract, mail the
applicant a supplemental application requesting information necessary
to make the determination of suitability. The supplemental
application may be sent to the applicant at the same time as the
disclosure required by Section 10127.10.
(d) Each insurer shall develop and provide to all agents and other
insurer representatives authorized to solicit individual consumers
for the sale of annuities, a checklist, screening device, or other
procedure to ensure that prospective clients have the mental capacity
to enter into a contract. If a written instrument is used, it shall
be retained by the insurer and made available to the commissioner
upon request.
(e) In the case that a presumptively unsuitable annuity is issued
to a senior, the issuer shall retain all records and documentation
supporting its rebuttal of the presumption of unsuitability and shall
make this documentation available to the commissioner upon request.
(f) Every insurer or entity marketing annuities shall establish
auditable procedures for verifying compliance with this section.
(g) In addition to other remedies available in this article, code,
and in California law, the commissioner, upon a finding of
unsuitability, shall order the insurer to rescind the contract and to
refund the premium plus interest of 10 percent per annum, including
all fees and costs. An additional administrative penalty equal to
half the deposit amount may be ordered by the commissioner or by a
court in actions brought under subdivision (e) of Section 789.
SEC. 4. Section 1724 is added to the Insurance Code, to read:
1724. An agent, broker, or solicitor who is not an active member
of the State Bar of California may not share a commission or other
compensation with an active member of the State Bar of California
who is not licensed as an insurance agent . For
purposes of this section, "commission or other compensation" means
pecuniary or nonpecuniary compensation of any kind relating to the
sale or renewal of an insurance policy or certificate or an annuity,
including, but not limited to, a bonus, gift, prize, award, or finder'
s fee.
SEC. 5. Section 1749.8 is added to the Insurance Code, to read:
1749.8. (a) Every insurance agent, broker, or insurer
representative licensed for the sale of annuities shall
satisfactorily complete eight hours of training prior to soliciting
individual consumers in order to sell annuities.
(b) Every insurance agent, broker, or insurer representative
licensed for the sale of annuities shall satisfactorily complete four
hours of continuing education every two years prior to license
renewal. This requirement shall be part of, and not in addition to,
the continuing education requirements of Section 1749.3.
(c) The training and continuing education required by this section
shall consist of topics related to annuities, and California law,
regulations, and requirements related to annuities, prohibited sales
practices, and fraudulent and unfair trade practices. Subject matter
determined by the commissioner to be primarily intended to promote
the sale or marketing of annuities shall not qualify for credit
towards the training and continuing education requirement. Any course
or seminar that is disapproved under the provisions of this section
shall be presumed invalid for credit towards the training and
continuing education requirement of this section unless it is
approved in writing by the commissioner.
SEC. 6. Section 10127.10 of the Insurance Code is amended to read:
10127.10. (a) Every policy of individual life insurance and every
individual annuity contract that is initially delivered or issued
for delivery to a senior citizen in this state on and after January
1, 2004, shall have printed thereon or attached thereto a notice
stating that, after receipt of the policy by the owner, the policy
may be returned by the owner for cancellation by delivering it or
mailing it to the insurer or agent from whom it was purchased. The
period of time set forth by the insurer for return of the policy by
the insured shall be clearly stated on the notice and this period
shall be not less than 30 days. The insured may return the policy to
the insurer by mail or otherwise at any time during the period
specified in the notice. In the case of individual life insurance
policies and individual annuity contracts (other than certain
variable contracts and modified guaranteed contracts), return of the
policy during the cancellation period shall have the effect of
voiding the policy from the beginning, and the parties shall be in
the same position as if no policy had been issued. All premiums paid
and any policy fee paid for the policy shall be refunded by the
insurer to the owner within 30 days from the date that the insurer is
notified that the owner has canceled the policy. In the case of
variable annuity contracts, variable life insurance contracts, and
modified guaranteed contracts, the premium shall not be invested
until after the expiration of the 30-day cancellation period. Return
of the contract during the cancellation period shall void the policy
from the beginning, and the parties shall be in the same position as
if no policy had been issued, unless the insured knowingly signed a
written waiver allowing the premium to be invested during the 30-day
cancellation period. After executing a valid waiver, cancellation
during the 30-day period shall entitle the owner to a refund of
account value and any policy fee paid for the policy. The account
value or premium and policy fee shall be refunded by the insurer to
the owner within 30 days from the date that the insurer is notified
that the owner has canceled the policy.
(b) This section applies to all individual policies issued or
delivered to senior citizens in this state on or after January 1,
2004. All policies subject to this section which are in effect on
January 1, 2003, shall be construed to be in compliance with this
section, and any provision in any policy which is in conflict with
this section shall be of no force or effect.
(c) Every individual life insurance policy and every individual
annuity contract, other than variable contracts and modified
guaranteed contracts, subject to this section, that is delivered or
issued for delivery in this state shall have the following notice
either printed on the cover page or policy jacket in 12-point bold
print with one inch of space on all sides or printed on a sticker
that is affixed to the cover page or policy jacket:
"IMPORTANT
YOU HAVE PURCHASED A LIFE INSURANCE POLICY OR ANNUITY CONTRACT.
CAREFULLY REVIEW IT FOR LIMITATIONS.
THIS POLICY MAY BE RETURNED WITHIN 30 DAYS FROM THE DATE YOU
RECEIVED IT FOR A FULL REFUND BY RETURNING IT TO THE INSURANCE
COMPANY OR AGENT WHO SOLD YOU THIS POLICY. AFTER 30 DAYS,
CANCELLATION MAY RESULT IN A SUBSTANTIAL PENALTY, KNOWN AS A
SURRENDER CHARGE."
The phrase "after 30 days, cancellation may result in a
substantial penalty, known as a surrender charge" may be deleted if
the policy does not contain those charges or penalties.
(d) Every individual variable annuity contract, variable life
insurance contract, or modified guaranteed contract subject to this
section, that is delivered or issued for delivery in this state,
shall have the following notice either printed on the cover page or
policy jacket in 12-point bold print with one inch of space on all
sides or printed on a sticker that is affixed to the cover page or
policy jacket:
"IMPORTANT
YOU HAVE PURCHASED A VARIABLE ANNUITY CONTRACT (VARIABLE LIFE
INSURANCE CONTRACT, OR MODIFIED GUARANTEED CONTRACT). CAREFULLY
REVIEW IT FOR LIMITATIONS.
THIS POLICY MAY BE RETURNED WITHIN 30 DAYS FROM THE DATE YOU
RECEIVED IT FOR A REFUND OF THE POLICY'S ACCOUNT VALUE ON THE DAY THE
POLICY IS RECEIVED BY THE INSURANCE COMPANY OR AGENT WHO SOLD YOU
THIS POLICY. A RETURN OF THE POLICY AFTER 30 DAYS MAY RESULT IN A
SUBSTANTIAL PENALTY, KNOWN AS A SURRENDER CHARGE."
The words "known as a surrender charge" may be deleted if the
contract does not contain those charges.
(e) This section does not apply to life insurance policies issued
in connection with a credit transaction or issued under a contractual
policy-change or conversion privilege provision contained in a
policy. Additionally, this section shall not apply to contributory
and noncontributory employer group life insurance, contributory and
noncontributory employer group annuity contracts, and group term life
insurance, with the exception of subdivision (f).
(f) When an insurer, its agent, group master policyowner, or
association collects more than one month's premium from a senior
citizen at the time of application or at the time of delivery of a
group term life insurance policy or certificate, the insurer must
provide the senior citizen a prorated refund of the premium if the
senior citizen delivers a cancellation request to the insurer during
the first 30 days of the policy period.
(g) For purposes of this chapter, a senior citizen means an
individual who is 60 years of age or older on the date of purchase of
the policy.
SEC. 7. Section 10127.13 of the Insurance Code is amended to read:
10127.13. Prior to the sale of any life insurance policy or
annuity contract to a senior citizen, or the replacement of any life
insurance policy or annuity contract held by a senior citizen, the
life insurer and life agent shall either disclose the surrender
period, all associated penalties, and the length of the deferral
period, if any, in 12-point bold print on the cover sheet of the
policy or disclose the location of the surrender information in bold
12-point print on the cover page of the policy, or printed on a
sticker that is affixed to the cover page or to the policy jacket.
The notice required by this section may appear on a cover sheet that
also contains the disclosure required by subdivision (d) of Section
10127.10.
SEC. 8. Section 10127.17 is added to the Insurance Code, to read:
10127.17. (a) In addition to the disclosure required pursuant to
Section 10127.10, every policy of life insurance and every annuity
that is proposed to be sold and issued to a senior citizen shall be
accompanied by a one-page outline disclosure, to be completed by the
agent and presented to the purchaser, consisting of the following
information:
(1) Relevant information about any surrender charges that would be
paid by the purchaser if the purchaser were to replace or revoke the
insurance contract before its maturity, including, but not limited
to, the amount, whether the charge is incurred at the death of the
annuitant or at some other time, and if there is an annual surrender
charge-free withdrawal available.
(2) The length of the deferral period, if any.
(3) The fact that the agent will receive a payment or commission
from the insurer issuing the policy, if that is the case, and a
statement that the amount of the payment or commission may be
affected by the price of the policy and the length of the deferral
period, if any.
(4) The fact that the sale or liquidation of any stock, bond, IRA,
certificate of deposit, mutual fund, annuity, or other asset to fund
the purchase of the product may have tax consequences, result in
early withdrawal penalties, or result in other costs or penalties as
a result of the sale or liquidation.
(5) A statement that the applicant should consult with an
independent advisor other than an insurance representative, such as
an attorney, accountant, or other professional, regarding the legal
and tax consequences of purchasing the annuity or using the annuity
to qualify for programs such as Medi-Cal.
(6) The right to return the policy within 30 days of its issuance
for a full refund.
(7) A statement that if the applicant has an existing annuity,
that he or she should contact the issuer of that annuity or the
applicable agent for an explanation of the surrender charges and the
ramifications of surrendering the existing annuity.
(b) The senior citizen receiving the one-page outline disclosure
shall acknowledge receipt of the document by signing a copy and
returning it to the agent.
SEC. 9. Section 10127.18 is added to the Insurance Code, to read:
10127.18. (a) This section applies to the sale or offering for
sale of insurance settlements life insurance
policies and annuities.
(b) An insurer, agent, or broker is required to deliver a notice
in writing to all clients and prospective clients 65 years of age or
older with whom a meeting is scheduled in the client's or prospective
client's home. The notice shall be delivered no less than 24 hours
before the meeting is scheduled to begin. The notice shall include
all of the following information:
(1) The right of the client or prospective client to terminate the
meeting at any time.
(2) The right of the client or prospective client to have other
persons present at the meeting, including family members, financial
advisors, or attorneys.
(3) The right of the client or prospective client to contact the
Department of Insurance or the Department of Corporations for
information or to make a complaint, with the notice to include the
telephone numbers for the consumer complaint lines for those
departments.
(c) Upon contacting a client or prospective client who is 65 years
of age or older at his or her home, an insurer, agent, or broker
shall, before making any other statement except a greeting, or asking
the client or prospective client any other questions, state that the
purpose of the contact is to effect a sale, and state all of the
following information:
(1) The identity of the person making the solicitation.
(2) The name of the insurer, broker, or agent making the
solicitation or represented by the person making the solicitation, if
known.
(3) That a life insurance policy or an annuity may be offered for
sale.
(d) The agent or assistants of life agents shall, also show or
display identification that states the information required by
subdivision (c) as well as the address of the place of business and
the insurance license number of the licensee.
(e) An insurer, agent, or broker shall leave the home of a client
or prospective client as soon as reasonably possible after being
asked to leave by the client or prospective client.
(f) An insurer, agent, or broker may not solicit a sale or order
for the sale of an annuity or life insurance policy at the residence
of a client or prospective client, in person or by telephone, by
using any plan, scheme, or ruse that misrepresents the true status or
mission of the contact.
(g) An insurer, agent, or broker has an affirmative duty to verify
that the client or prospective client has the capacity to enter into
a contract, and shall terminate any meeting in which the client's or
prospective client's capacity to enter into a contract is not clear.
(h) The provisions of this section also apply to individuals who
are not insurers, agents, or brokers but who facilitate, arrange, or
participate in the sales presentation of an annuity or life insurance
policy and receive any money, gift, value, or other consideration
from the insurer, broker, or agent for the services rendered to
assist in the sales presentation.
SEC. 10. Section 10509.8 of the Insurance Code is amended to read:
10509.8. (a) A violation of this article shall occur if an agent
or insurer recommends the replacement or conservation of an existing
policy by use of a materially inaccurate presentation or comparison
of an existing contract's premiums and benefits or dividends and
values, if any, or recommends that an insured 65 years of age or
older purchase an unnecessary replacement annuity.
(b) For purposes of this section, "unnecessary replacement" means
the sale of an annuity to replace an existing annuity that requires
that the insured will pay a surrender charge for the annuity that is
being replaced and that does not confer a substantial financial
benefit over the life of the policy to the purchaser so that a
reasonable person would believe that the purchase is unnecessary.
(c) Patterns of action by policyowners who purchase replacement
policies from the same agent after indicating on applications that
replacement is not involved, shall constitute a rebuttable
presumption of the agent's knowledge that replacement was intended in
connection with the sale of those policies, and such patterns of
action shall constitute a rebuttable presumption of the agent's
intent to violate this article.
(d) This article does not prohibit the use of additional material
other than that which is required that is not in violation of this
article or any other statute or regulation.