Enrolled Bill Summary

House Bill 2277	House Author:  Eiland
Effective:  9-1-11	Senate Sponsor:  Williams

House Bill 2277 amends Insurance Code provisions relating to life settlements and the sale, exchange, or replacement of life insurance and annuity contracts.  The bill repeals Insurance Code provisions relating to the registration of a business engaged in the business of life or viatical settlements and instead requires a person, to act as a life settlement contract provider or broker with an owner who is a Texas resident, to hold a license from the Texas Department of Insurance (TDI). Among other provisions, the bill sets out licensing requirements; the conditions under which the commissioner of insurance is authorized to suspend, revoke, or refuse to renew a license; requirements for contract forms, disclosure forms, and advertisements; reporting requirements; and the privacy of insureds. The bill establishes the commissioner's investigative authority and the cost of examinations of a person engaged in the business of life settlements. The bill requires a broker, or provider if no broker is involved in an application, as appropriate, to make specified disclosures to the owner of a policy or the provider, as appropriate. The bill establishes general rules that govern life settlement contracts and authorizes the commissioner to adopt rules relating to such contracts. The bill sets out specific prohibited practices, including fraud, and regulatory enforcement measures and penalties.

House Bill 2277 revises suitability requirements for life annuity products by, among other requirements, requiring an insurance agent or the insurer if an agent is not involved, in recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, to have a reasonable basis to believe specified information relating to the suitability of the recommendation for the particular consumer; prohibiting an insurer, with certain exceptions, from issuing an annuity recommended to a consumer unless the insurer has a reasonable basis to believe the annuity is suitable based on the consumer's suitability information; and requiring an insurer's issuance of an annuity, if the insurer is exempt for that requirement, to be reasonable under all circumstances actually known to the insurer at the time the annuity is issued. The bill also requires an agent or insurer to keep certain records at the time of sale of an annuity. The bill revises insurer supervision system requirements.  The bill clarifies the applicability of provisions relating to the compliance of annuity sales with certain national standards.

House Bill 2277 revises agent training and education requirements. The bill prohibits an agent from soliciting the sale of an annuity product unless the agent has adequate knowledge of the product to recommend the annuity and is in compliance with the insurer's standards for product training; requires an agent who engages in the sale of annuity products to complete a one-time training course approved by TDI and provided by a continuing education provider; and sets out requirements for such training. 

House Bill 2277 makes an insurer responsible for compliance with suitability requirements for certain annuity transactions and revises the list of actions the commissioner is authorized to take if a violation occurs. The bill requires, rather than authorizes, the commissioner to reduce or eliminate a sanction for a violation of suitability requirements otherwise applicable if corrective action for the consumer was taken promptly by the agent or insurer after a violation was discovered and adds as an alternative trigger for such reduction or elimination that the violation was not part of a pattern or practice.

House Bill 2277 requires an insurer that offers to waive surrender charges under a contract when the contract holder exchanges that contract for another annuity contract issued by the same insurer or affiliate to provide reasonable notice of that offer to the insurer's prospective or current contract holders.