BILL NUMBER: SB 620 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY SEPTEMBER 8, 2003
AMENDED IN ASSEMBLY AUGUST 28, 2003
AMENDED IN ASSEMBLY AUGUST 18, 2003
AMENDED IN ASSEMBLY JULY 16, 2003
AMENDED IN ASSEMBLY JULY 2, 2003
AMENDED IN SENATE MAY 13, 2003
AMENDED IN SENATE APRIL 29, 2003
AMENDED IN SENATE APRIL 21, 2003
INTRODUCED BY Senator Scott
(Coauthors: Senators Bowen, Ortiz, and Romero)
(Coauthors: Assembly Members Benoit, Calderon, Chavez, Frommer,
Koretz, Laird, Lieber, Lowenthal, Maddox, Mountjoy, Nakano, and
Vargas)
FEBRUARY 20, 2003
An act to amend Sections 787, 1725.5, 10127.10, and 10509.8 of,
and to add Sections 789.9, 789.10, 1724, and 1749.8 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 life insurance and annuities. The bill would prohibit the sale of
annuities to seniors in certain circumstances. The bill would
prohibit insurance agents, brokers, and solicitors who are not
attorneys from sharing commissions or other compensation with
attorneys. The bill would require, effective January 1, 2005,
specific training for life agents in order for these producers to
sell annuities, unless the agents are nonresident agents who
represent a direct response provider, as defined. The bill would
limit the investment of premiums during the 30-day cancellation
period, except as specified, and would revise the disclosure
requirements applicable to the sale of life insurance and annuity
products to seniors. The bill would impose restrictions on the sale
of life insurance policies and annuities 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 prominently 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, 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, 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 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) In addition to any other prohibition on untrue, deceptive, or
misleading advertisements, no advertisement for an event where
insurance products will be offered for sale 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 insurance sales presentation"
immediately following those terms in the same type size and font as
those terms.
SEC. 2. Section 789.9 is added to the Insurance Code, to read:
789.9. (a) In addition to any other reasons that a sale of an
individual annuity to a senior may violate any provision of law, an
annuity shall not be sold to a senior in any of the following
circumstances:
(1) The senior's purpose in purchasing the annuity is to affect
Medi-Cal eligibility and either of the following is true:
(A) 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).
(B) The senior would otherwise qualify for Medi-Cal.
(2) The senior's purpose in purchasing the annuity is to affect
Medi-Cal eligibility and, after the purchase of the annuity, the
senior or the senior's spouse would not qualify for Medi-Cal.
(b) In the event that a fixed annuity specified in subdivision (a)
is issued to a senior, the issuer shall rescind the contract and
refund to the purchaser all premiums, fees, any interest earned under
the terms of the contract, and costs paid for the annuity. This
remedy shall be in addition to any other remedy that may be
available.
SEC. 3. Section 789.10 is added to the Insurance Code, to read:
789.10. (a) This section applies to the sale, offering for sale,
or generation of leads for the sale of life insurance, including
annuities, to senior insureds or prospective insureds by any person.
(b) Any person who meets with a senior in the senior's home is
required to deliver a notice in writing to the senior no less than 24
hours prior to that individual's initial meeting in the senior's
home. If the senior has an existing insurance relationship with an
agent and requests a meeting with the agent in the senior's home the
same day, a notice shall be delivered to the senior prior to the
meeting. The notice shall be in substantially the following form,
with the appropriate information inserted, in 14-point type:
"(1) During this visit or a followup visit, you will be given a
sales presentation on the following (indicate all that apply):
( ) Life insurance, including annuities
( ) Other insurance products (specify): _________________.
(2) You have the right to have other persons present at the
meeting, including family members, financial advisors or attorneys.
(3) You have the right to end the meeting at any time.
(4) You have the right to contact the Department of Insurance
or the Department of Corporations for information,
or to file a complaint. (The notice shall include the consumer
assistance telephone numbers at those departments)
the department)
(5) The following individuals will be coming to your home: (list
all attendees, and insurance license information, if applicable)"
(c) Upon contacting the senior in the senior's home, the person
shall, before making any statement other than a greeting, or asking
the senior any other questions, state that the purpose of the contact
is to talk about insurance, or to gather information for a followup
visit to sell insurance, if that is the case, and state all of the
following information:
(1) The name and titles of all persons arriving at the senior's
home.
(2) The name of the insurer represented by the person, if known.
(d) Each person attending a meeting with a senior shall provide
the senior with a business card or other written identification
stating the person's name, business address, telephone number, and
any insurance license number.
(e) The persons attending a meeting with a senior shall end all
discussions and leave the home of the senior immediately after being
asked to leave by the senior.
(f) A person may not solicit a sale or order for the sale of an
annuity or life insurance policy at the residence of a senior, in
person or by telephone, by using any plan, scheme, or ruse that
misrepresents the true status or mission of the contact.
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.
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 1725.5 of the Insurance Code is amended to read:
1725.5. (a) For purposes of Sections 32.5, 1625, 1626, 1724.5,
1758.1, 1765, 1800, 14020, 14021, and 15006, every licensee shall
prominently affix, type, or cause to be printed on business cards,
written price quotations for insurance products, and print
advertisements distributed exclusively in this state for insurance
products its license number in type the same size as any indicated
telephone number, address, or fax number. If the licensee maintains
more than one organization license, one of the organization license
numbers is sufficient for compliance with this section.
(b) Effective January 1, 2005, for purposes of Sections 32.5,
1625, 1626, 1724.5, 1758.1, 1765, 1800, 14020, 14021, and 15006,
every licensee shall prominently affix, type, or cause to be printed
on business cards, written price quotations for insurance products,
and print advertisements, distributed in this state for insurance
products, the word "Insurance" in type size no smaller than the
largest indicated telephone number.
(c) In the case of transactors, or agent and broker licensees, who
are classified for licensing purposes as solicitors, working as
exclusive employees of motor clubs, organizational licensee numbers
shall be used.
(d) Any person in violation of this section shall be subject to a
fine levied by the commissioner in the amount of two hundred dollars
($200) for the first offense, five hundred dollars ($500) for the
second offense, and one thousand dollars ($1,000) for the third and
subsequent offenses. The penalty shall not exceed one thousand
dollars ($1,000) for any one offense. These fines shall be deposited
into the Insurance Fund.
(e) A separate penalty shall not be imposed upon each piece of
printed material that fails to conform to the requirements of this
section.
(f) If the commissioner finds that the failure of a licensee to
comply with the provisions of subdivision (a) or (b) is due to
reasonable cause or circumstance beyond the licensee's control, and
occurred notwithstanding the exercise of ordinary care and in the
absence of willful neglect, the licensee may be relieved of the
penalty in subdivision (d).
(g) A licensee seeking to be relieved of the penalty in
subdivision (d) shall file with the department a statement with
supporting documents setting forth the facts upon which the licensee
bases its claims for relief.
(h) This section does not apply to any person or entity that is
not currently required to be licensed by the department or that is
exempted from licensure.
(i) This section does not apply to general advertisements of motor
clubs that merely list insurance products as one of several services
offered by the motor club, and do not provide any details of the
insurance products.
(j) This section does not apply to life insurance policy
illustrations required by Chapter 5.5 (commencing with Section
10509.950) of Part 2 of Division 2 or to life insurance cost indexes
required by Chapter 5.6 (commencing with Section 10509.970) of Part 2
of Division 2.
(k) This section shall become operative January 1, 1997.
SEC. 6. Section 1749.8 is added to the Insurance Code, to read:
1749.8. (a) Effective January 1, 2005, every life agent who sells
annuities shall satisfactorily complete eight hours of training
prior to soliciting individual consumers in order to sell annuities.
(b) Effective January 1, 2005, every life agent who sells
annuities shall satisfactorily complete four hours of training every
two years prior to license renewal. For resident agents, this
requirement shall be part of, and not in addition to, the continuing
education requirements of Section 1749.3.
(c) The training required by this section shall be approved by the
commissioner and shall consist of topics related to annuities, and
California law, regulations, and requirements related to annuities,
prohibited sales practices, the recognition of indicators that a
prospective insured may lack the short-term memory or judgment to
knowingly purchase an insurance product, 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 requirement. Any
course or seminar that is disapproved under the provisions of this
section shall be presumed invalid for credit towards the training
requirement of this section unless it is approved in writing by the
commissioner.
(d) The training requirements set forth in this section shall not
apply to nonresident agents representing an insurer that is a direct
response provider.
For the purposes of this section, "direct response provider" means
an insurer that meets each of the following criteria:
(1) The insurer does not initiate telephone contact with insureds
or prospective insureds.
(2) Agents of the insurer speak with insureds and prospective
insureds only by telephone, and at the request of the insureds or
prospective insureds.
(3) Agents of the insurer are assigned to speak with insureds or
prospective insureds on a random basis, when contacted.
(4) Agents of the insurer are salaried and do not receive
commissions for sales or referrals.
SEC. 7. 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 July 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. During the 30-day cancellation period, the premium for a
variable annuity may be invested only in fixed-income investments and
money-market funds, unless the investor specifically directs that
the premium be invested in the mutual funds underlying the variable
annuity contract. Return of the policy within the 30-day
cancellation period shall have one of the following effects:
(1) In the case of individual life insurance policies and variable
annuity contracts for which the owner has not directed that the
premium be invested in the mutual funds underlying the contract
during the cancellation period, 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. The 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.
(2) In the case of a variable annuity for which the owner has
directed that the premium be invested in the mutual funds underlying
the contract during the 30-day cancellation period, cancellation
shall entitle the owner to a refund of the account value. The
account value 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 contract.
(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. DURING THAT 30-DAY PERIOD, YOUR MONEY WILL BE PLACED IN
A FIXED ACCOUNT OR MONEY-MARKET FUND, UNLESS YOU DIRECT THAT THE
PREMIUM BE INVESTED IN A STOCK OR BOND PORTFOLIO UNDERLYING THE
CONTRACT DURING THE 30-DAY PERIOD. IF YOU DO NOT DIRECT THAT THE
PREMIUM BE INVESTED IN A STOCK OR BOND PORTFOLIO, AND IF YOU RETURN
THE POLICY WITHIN THE 30-DAY PERIOD, YOU WILL BE ENTITLED TO A REFUND
OF THE PREMIUM AND POLICY FEES. IF YOU DIRECT THAT THE PREMIUM BE
INVESTED IN A STOCK OR BOND PORTFOLIO DURING THE 30-DAY PERIOD, AND
IF YOU RETURN THE POLICY DURING THAT PERIOD, YOU WILL BE ENTITLED TO
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,
WHICH COULD BE LESS THAN THE PREMIUM YOU PAID FOR THE 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. 8. 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.