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A BILL TO BE ENTITLED
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AN ACT
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relating to rules governing suitability in certain annuity |
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transactions. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Chapter 1104, Insurance Code, is amended by |
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adding Subchapter C as follows: |
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SUBCHAPTER C. SUITABILITY IN CERTAIN ANNUITY TRANSACTIONS. |
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Sec. 1104.101. PURPOSE AND SCOPE. (a) The purpose of this |
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chapter is to set forth standards and procedures for |
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recommendations to consumers that result in a transaction involving |
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annuity products so that the insurance needs and financial |
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objectives of consumers at the time of the transaction are |
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appropriately addressed. |
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(b) Nothing herein shall be construed to create or imply a |
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private cause of action for a violation of this regulation. |
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(c) This chapter shall apply to any recommendation to |
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purchase or exchange an annuity made to a consumer by an agent, or |
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insurer where no agent is involved, that results in the purchase or |
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exchange recommended. |
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Sec. 1104.102. DEFINITIONS. (a) The following words and |
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terms when used in this chapter shall have the following meaning, |
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unless the context clearly indicates otherwise: |
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(1) "Agent" or "insurance agent" means an individual |
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or business entity that sells, solicits, or negotiates contracts of |
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insurance or annuity in this State. |
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(2) "Annuity" means a fixed, variable or modified |
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guaranteed annuity that is individually solicited, whether the |
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product is classified as an individual annuity or group annuity. |
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(3) "Commissioner" means the Commissioner of the Texas |
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Department of Insurance. |
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(4) "Insurer" means an insurance company required to |
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be licensed under the laws of this State. |
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(5) "Recommendation" means advice provided by an |
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agent, or an insurer where no agent is involved, to an individual |
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consumer that results in a purchase or exchange of an annuity in |
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accordance with that advice. |
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Sec. 1104.103. EXEMPTIONS. (a) Unless otherwise |
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specifically included, this chapter shall not apply to |
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recommendations involving: |
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(1) direct response solicitations where there is no |
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recommendation based on information collected from the consumer |
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pursuant to this chapter; |
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(2) contracts used to fund: |
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(A) an employee pension or welfare benefit plan |
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that is covered by the Employee Retirement Income Security Act of |
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1974 (ERISA) (29 USC Section 1001 et seq.); |
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(B) a plan described by 26 USC Sections 401(a), |
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401(k), 403(b), 408(k) or 408(p) of the Internal Revenue Code, if |
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established or maintained by an employer; |
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(C) a government or church plan defined in 26 USC |
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Section 414 of the Internal Revenue Code, a government or church |
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welfare benefit plan, or a deferred compensation plan of a state or |
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local government or tax exempt organization under 26 USC Section |
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457 of the Internal Revenue Code; |
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(D) a nonqualified deferred compensation |
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arrangement established or maintained by an employer or plan |
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sponsor; |
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(E) settlements of or assumptions of liabilities |
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associated with personal injury litigation or any dispute or claim |
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resolution process; or |
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(F) preneed funeral contracts as defined in |
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Section 154 of the Texas Finance Code. |
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Sec. 1104.104. DUTIES OF INSURERS AND AGENTS. |
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(a) Suitability of annuity product is required. In recommending |
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to a consumer the purchase of an annuity or the exchange of an |
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annuity that results in another insurance transaction or series of |
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insurance transactions, the agent, or the insurer where no agent is |
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involved, shall have reasonable grounds for believing that the |
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recommendation is suitable for the consumer on the basis of the |
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facts disclosed by the consumer as to his investments and other |
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insurance products and as to his financial situation and needs. |
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(b) Prior to the execution of a purchase or exchange of an |
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annuity resulting from a recommendation, an agent, or insurer where |
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no agent is involved, shall make reasonable efforts To obtain |
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information concerning: |
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(1) the consumer's financial status; |
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(2) the consumer's tax status; |
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(3) the consumer's investment objectives; and |
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(4) such other relevant information used or considered |
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to be reasonable by the agent, or the insurer where no agent is |
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involved, in making recommendations to the consumer. |
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(c) Obligation of agents and insurers to consumers. |
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(1) Except as provided in Paragraph (2) of this |
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subsection, neither an agent, nor an insurer where no agent is |
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involved, shall have any obligation to a consumer under Subsection |
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(a) of this section related to any recommendation if a consumer: |
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(A) refuses to provide relevant information |
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requested by the insurer or agent; |
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(B) decides to enter into an insurance |
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transaction that is not based on a recommendation of the insurer or |
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agent; or |
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(C) fails to provide complete or accurate |
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information. |
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(2) An insurer or agent's recommendation subject to |
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Paragraph (1) shall be reasonable under all the circumstances |
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actually known to the insurer or agent at the time of the |
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recommendation. |
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(d)(1) An insurer either shall assure that a system to |
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supervise recommendations that is reasonably designed to achieve |
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compliance with this chapter is established and maintained by |
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complying with Paragraphs (3) through (5) of this subsection, or |
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shall establish and maintain such a system, including, but not |
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limited to: |
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(A) maintaining written procedures; and |
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(B) conducting periodic reviews of its records |
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that are reasonably designed to assist in detecting and preventing |
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violations of this chapter. |
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(2) An agent and independent agency either shall adopt |
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a system established by an insurer to supervise recommendations of |
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its agents that is reasonably designed to achieve compliance with |
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this chapter, or shall establish and maintain such a system, |
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including, but not limited to: |
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(A) maintaining written procedures; and |
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(B) conducting periodic reviews of records that |
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are reasonably designed to assist in detecting and preventing |
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violations of this chapter. |
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(3) An insurer or agent may contract with a third |
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party, including an agent or independent agency, to establish and |
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maintain a system of supervision as required by Subsection (1) of |
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this Section with respect to agents under contract with or employed |
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by the third party. |
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(4) An insurer or agent shall make reasonable inquiry |
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to assure that the third party contracting under Paragraph (3) of |
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this subsection is performing the functions required under |
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Paragraph (1) of this subsection and shall take action that is |
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reasonable under the circumstances to enforce the contractual |
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obligation to perform the functions. An insurer or agent may comply |
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with its obligation to make reasonable inquiry by doing all of the |
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following: |
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(A) the insurer annually obtains a certification |
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from a third party senior manager who has responsibility for the |
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delegated functions that the manager has a reasonable basis to |
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represent, and does represent, that the third party is performing |
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the required functions; and |
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(B) the insurer, based on reasonable selection |
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criteria, periodically selects third parties contracting under |
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Paragraph (3) of this subsection for a review to determine whether |
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the third parties are performing the required functions. The |
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insurer shall perform those procedures to conduct the review that |
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are reasonable under the circumstances. |
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(5) An insurer or agent that contracts with a third |
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party pursuant to Paragraph (3) of this subsection and that |
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complies with the requirements to supervise in Paragraph (4) of |
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this subsection shall have fulfilled its responsibilities under |
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Paragraph (1) of this subsection. |
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(6) An insurer, agent or independent agency is not |
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required by Paragraphs (1) or (2) of this subsection to: |
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(A) review, or provide for review of, all |
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agent-solicited transactions; or |
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(B) include in its system of supervision an |
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agent's recommendations to consumers of products other than the |
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annuities offered by the insurer, agent or independent agency. |
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(7) An agent or independent agency contracting with an |
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insurer pursuant to Paragraph (3) of this subsection, when |
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requested by the insurer pursuant to Paragraph (4) of this |
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subsection, shall promptly give a certification as described in |
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Paragraph (4) or give a clear statement that it is unable to meet |
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the certification criteria. |
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(8) No person may provide a certification under |
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Paragraph (4) (A) of this subsection unless: |
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(A) the person is a senior manager with |
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responsibility for the delegated functions; and |
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(B) the person has a reasonable basis for making |
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the certification. |
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(e) Compliance with the National Association of Securities |
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Dealers Conduct Rules pertaining to suitability shall satisfy the |
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requirements under this section for the recommendation of variable |
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annuities. However, nothing in this subsection shall limit the |
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commission's ability to enforce the provisions of this chapter. |
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Sec. 1104.105. RECORDKEEPING. (a) Insurers, general |
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agents, independent agencies and insurance agents shall maintain or |
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be able to make available to the commissioner records of the |
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information collected from the consumer and other information used |
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in making the recommendations that were the basis for insurance |
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transactions for five years after the insurance transaction is |
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completed by the insurer. An insurer is permitted, but shall not be |
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required, to maintain documentation on behalf of an insurance |
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agent. |
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(b) Records that are required to be maintained by this |
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Section may be maintained in paper, photographic, microprocess, |
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magnetic, mechanical or electronic media by any process that |
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accurately reproduces the actual document. |
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Sec. 1104.106. ENFORCEMENT. (a) Mitigation of |
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responsibility. |
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(1) The Commissioner may order the following: |
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(A) an insurer to take reasonable appropriate |
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corrective action for any consumer harmed by the insurer, or by its |
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insurance agent's violation of this section. |
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(B) an insurance agent to take reasonably |
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appropriate corrective action for any consumer harmed by the |
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insurance agent's violation of this section. |
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(C) a general agency or independent agency that |
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employs or contracts with an insurance agent to sell, or solicit the |
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sale, of annuities to consumers, to take reasonably appropriate |
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corrective action for any consumer harmed by the insurance agent's |
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violation of the regulation. |
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(2) Any applicable penalty under this subsection for a |
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violation of this chapter may be reduced or eliminated if |
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corrective action for the consumer was taken promptly after a |
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violation was discovered. |
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(b) Noncompliance with this section may result, after |
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proper notice, in the imposition of any of the sanctions and |
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remedies made available in Texas pertaining to the business of |
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insurance or other suspensions or revocations of license. |
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Sec. 1104.107. SEVERABILITY. (a) If any provision of this |
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chapter, or its application to any person or circumstance is for any |
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reason held to be invalid by a court, the remainder of this chapter |
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and the application of the provisions to other persons or |
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circumstances shall not be affected. |
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Sec. 1104.108 AUTHORITY OF COMMISSIONER. (a) The |
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Commissioner of Insurance may adopt reasonable rules to accomplish |
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and enforce the purpose of this chapter. |
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SECTION 2. This Act takes effect immediately if it receives |
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a vote of two-thirds of all the members elected to each house, as |
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provided by Section 39, Article III, Texas Constitution. If this |
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Act does not receive the vote necessary for immediate effect, this |
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Act takes effect September 1, 2007. |
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