Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.12-010,
304.12-030
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 provides that the Executive
Director of Insurance may make reasonable rules and regulations necessary for
or as an aid to the effectuation of any provision of the Kentucky Insurance
Code.
KRS
304.12-030 establishes minimum standards of
conduct to be observed in replacement or proposed replacement of life insurance
policies and annuity contracts. This administrative regulation sets forth the
procedures to be followed in the replacement or proposed replacement of life
insurance policies and annuity contracts.
Section
1. Definitions.
(1)
"Conservation" means any attempt by the existing insurer or its agent to
continue existing life insurance in force after the existing insurer has
received a copy of the "Office Form A, Important Notice: Replacement of Life
Insurance or Annuities" as required by Section 3(2) of this administrative
regulation from a replacing insurer. A conservation effort does not include
routine administrative procedures.
(2) "Direct-response solicitation" is defined
in
KRS
304.12-030(1)(f).
(3) "Executive director" is defined by
KRS
304.1-050(1).
(4) "Existing life insurance" is defined in
KRS
304.12-030(1)(d).
(5) "Existing insurer" is defined in
KRS
304.12-030(1)(b).
(6) "Financed purchase" is defined in
KRS
304.12-030(1)(e).
(7) "Illustration" means a presentation or
depiction that includes nonguaranteed elements of a policy of life insurance
over a period of years.
(8)
"Office" is defined by
KRS
304.1-050(2).
(9) "Policy summary" means:
(a) For policies or contracts other than
universal life policies, a written statement regarding a policy or contract
which shall contain, to the extent applicable, the following information:
1. The current death benefit;
2. The annual contract premium;
3. The current cash surrender
value;
4. The current dividend;
and
5. The amount of outstanding
loans; or
(b) For
universal life policies, a written statement that contains, at a minimum, the
following information:
1. The beginning and
end dates of the current reporting period;
2. The policy value at the end of the
previous reporting period and at the end of the current reporting
period;
3. The total amounts that
have been credited or debited to the policy value during the current reporting
period, identifying each by type;
4. The current death benefit at the end of
the current reporting period on each life covered by the policy;
5. The net cash surrender value of the policy
as of the end of the current reporting period; and
6. The amount of outstanding loans, if any,
as of the end of the current reporting period.
(10) "Registered contract" means a variable
annuity contract or variable life insurance policy subject to the prospectus
delivery requirements of the Securities Act of 1933,
15
U.S.C. 77a et seq.
(11) "Replacement" is defined in
KRS
304.12-030(1)(a).
(12) "Replacing insurer" is defined in
KRS
304.12-030(1)(c).
(13) "Sales material" means a sales
illustration and any other written, printed, or electronically-presented
information created, completed, or provided by the company or agent and used in
the presentation to the policy or contract owner related to the policy or
contract purchased.
(14) "Universal
life insurance policy" means a life insurance policy where separately
identified interest credits, other than in connection with dividend
accumulations, premium deposit funds, or other supplementary accounts, and
mortality and expense charges are made to the policy. A universal life
insurance policy may provide for other credits and charges, such as charges for
the cost of benefits provided by the rider.
Section 2. Exemptions. This administrative
regulation shall not apply to the policies or contracts set forth in
KRS
304.12-030(3).
Section 3. Duties of Agents.
(1) Each agent shall submit to the insurer
with, or as part of the application, a statement signed by both the applicant
and the agent as to whether the applicant has existing policies or contracts.
If the applicant indicates that he or she does not have existing policies or
contracts, the agent's duties with respect to replacement are
complete.
(2) If the applicant
indicates that he or she has existing policies or contracts, the agent shall
present and read to the applicant, not later than at the time of taking the
application "Office Form A, Important Notice: Replacement of Life Insurance or
Annuities," or a substantially-similar form approved by the executive director.
Approval shall not be required if amendments to the notice are limited to the
omission of references not applicable to the product being sold or replaced.
The notice shall be:
(a) Signed by both the
applicant and the agent attesting that:
1.
The notice has been read aloud by the agent; or
2. The applicant did not wish the notice to
be read aloud, in which case the agent need not have read the notice aloud;
and
(b) Left with the
applicant.
(3) The
notice shall list all life insurance policies or annuity contracts proposed to
be replaced, and properly identified by:
(a)
Name of insurer;
(b) The insured or
annuitant; and
(c) Policy or
contract number, if available.
(4) The notice shall include a statement as
to whether each policy or contract will be replaced or whether a policy or
contract 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 shall be listed.
(5) In connection with a replacement
transaction, the agent shall leave with the applicant when an application for a
new policy or contract is completed, the original or a copy of all sales
material. Electronically-presented sales material shall be provided to the
policy or contract owner in printed form no later than when the policy or
contract is delivered.
(6) Except
as provided in Section 5(3), in connection with a replacement transaction, the
agent shall submit to the insurer to which an application for a policy or
contract is presented:
(a) A copy of each
document required by this section;
(b) A statement identifying any preprinted or
electronically-presented company approved sales materials used; and
(c) Copies of any individualized sales
materials, including any illustrations related to the specific policy or
contract purchased.
Section 4. Duties of Insurers That Use
Agents. Insurers that use agents shall:
(1)
Maintain a system of supervision and control to ensure compliance with the
requirements of this administrative regulation that shall include at least the
following:
(a) Inform its agents of the
requirements of this administrative regulation and
KRS
304.12-030, and incorporate the requirements
of this administrative regulation into all relevant agent training manuals
prepared by the insurer;
(b)
Provide to each agent a written statement of the insurer's position with
respect to the acceptability of replacements providing guidance to its agents
as to the appropriateness of these transactions;
(c) A system to review the appropriateness of
each replacement transaction that the agent does not indicate is in accord with
paragraph (b) of this subsection;
(d) Procedures to confirm that the
requirements of this administrative regulation have been met; and
(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 agent.
(2) Have the capacity to monitor
each agent's life insurance policy and annuity contract replacements for that
insurer, and shall produce, upon request, and make the records available to the
Office of Insurance. The capacity to monitor shall include the ability to
produce records for each agent's:
(a) Life
replacements, including financed purchases, as a percentage of the agent's
total annual sales for life insurance;
(b) Number of lapses of policies by the agent
as a percentage of the agent's total annual sales for life insurance.
(c) Annuity contract replacements as a
percentage of the agent'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 insurer's monitoring system as required by subsection
(1)(e) of this section; and
(e)
Replacements, indexed by replacing agent and existing insurer.
(3) Require with or as a part of
each application for life insurance or an annuity, a signed statement by both
the applicant and the agent as to whether the applicant has existing policies
or contracts;
(4) Require with each
application for life insurance or an annuity that indicates an existing policy
or contract a completed notice regarding replacements as contained in "Office
Form A, Important Notice: Replacement of Life Insurance or
Annuities;"
(5) If the applicant
has existing policies or contracts, be able to produce copies of any sales
material required by Section 3(6) of this administrative regulation, the basic
illustration, and any supplemental illustrations related to the specific policy
or contract that is purchased, and the agent's and applicant's signed
statements with respect to financing and replacement for at least five (5)
years after the termination or expiration of the proposed policy or
contract;
(6) Ascertain that the
sales material and illustrations required by Section 3(6) of this
administrative regulation meet the requirements of this administrative
regulation and are complete and accurate for the proposed policy or
contract;
(7) If an application
does not meet the requirements of this administrative regulation, notify the
agent and applicant and fulfill the outstanding requirements; and
(8) Maintain records in paper, photograph,
microprocess, magnetic, mechanical, or electronic media or by any process that
accurately reproduces the actual document.
Section 5. Duties of Replacing Insurers that
Use Agents.
(1) If 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 administrative regulation;
(b) Notify any other existing insurer that
may be affected by the proposed replacement within five (5) business days of
receipt of a completed application indicating replacement of when the
replacement is identified, if not indicated on the application, and mail a copy
of the available illustration or policy summary for the proposed policy or
available disclosure document for the proposed contract within five (5)
business days of a request from an existing insurer;
(c) Be able to produce copies of the
notification regarding replacement required in Section 3(2) of this
administrative regulation, indexed by agent, for at least five (5) years or
until the next regular examination by the insurance department of an insurer's
state of domicile, whichever is later; and
(d) Provide to the policy or contract owner
notice of the right to return the policy or contract within thirty (30) days of
the delivery of the contract and receive an unconditional full refund of all
premiums or considerations paid on it, including any policy fees or charges or,
if a variable or market value adjustment policy or contract, a payment of the
cash surrender value provided under the policy or contract plus the fees and
other charges deducted from the gross premiums or considerations or imposed
under the policy or contract.
(e)
Allow credit for the period of time that has elapsed under the replaced
policy's or contract's incontestability and suicide period 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.
(2) If an
insurer prohibits the use of sales material other than that approved by the
insurer, as an alternative to the requirements made of an insurer pursuant to
Section 3(6) of this administrative regulation, the insurer:
(a) May require with each application a
statement signed by the agent that:
1.
Represents that the agent used only company-approved sales material;
and
2. States that copies of all
sales material were left with the applicant in accordance with Section 3(5) of
this administrative regulation;
(b) May within ten (10) days of the issuance
of the policy or contract:
1. 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 agent has represented that copies of all sales material have been left with
the applicant in accordance with Section 3(5) of this administrative
regulation;
2. Provide the
applicant with a toll-free number to contact insurer personnel involved in the
compliance function if this is not the case; and
3. Stress the importance of retaining copies
of the sales material for future reference; and
(c) Shall be able to produce a copy of the
letter or other verification in the policy file for at least five (5) years
after the termination or expiration of the policy or contract.
Section 6. 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 a replacing
insurer, for at least five (5) years or until the conclusion of the next
regular examination conducted by the insurance department of its state of
domicile, whichever is later.
(2)
Send a letter to the policy or contract owner of the right to receive
information regarding the existing policy or contract values including:
(a) An in-force illustration, if available;
or
(b) A policy summary if an
in-force illustration cannot be produced within five (5) business days of
receipt of a notice that an existing policy or contract is being replaced. The
information shall be provided within five (5) business days of receipt of the
request from the policy or contract owner.
(3) Upon receipt of a request to borrow,
surrender, or withdraw any policy values, send a notice advising the policy
owner that the release of policy values may affect the guaranteed elements,
nonguaranteed elements, face amount or surrender value of the policy from which
the values are released. The notice shall be sent separate from the check if
the check is sent to anyone other than the policy owner. In the case of
consecutive automatic premium loans, the insurer shall send the notice at the
time of the first loan.
Section
7. Duties of Insurer with Respect to Direct-response Solicitation.
(1) If an application 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 to the
applicant with the policy or contract, a notice regarding replacement in
"Office Form B, Notice Regarding Replacing Your Life Insurance Policy or
Annuity" or other substantially-similar form approved by the executive
director.
(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 "Office Form
C, Important Notice: Replacement of Life Insurance or Annuities," or other
substantially-similar form approved by the executive director. In these
instances, the insurer may delete the references to the agent, including the
agent's signature, and references not applicable to the product being sold or
replaced, without having to obtain approval of the form from the executive
director. 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 paragraph. 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 Section
5(1)(b), if the applicant furnishes the names of the existing insurers, and the
requirements of Section 5(1)(c), (d), and 5(2).
Section 8. Violations and Penalties.
(1) Any failure to comply with this
administrative regulation shall be considered a violation of
KRS
304.12-010.
(2) Policy and contract owner 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. Patterns of this action by policy or contract owners of
the same agent shall be deemed prima facie evidence of the agent'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
agent's intent to violate this administrative regulation.
(3) If it is determined that the requirements
of this administrative regulation have not been met, the replacing insurer
shall provide to the policy owner an in-force illustration, if available, or
policy summary for the replacement policy or available disclosure document for
the replacement contract and the appropriate notice regarding replacements in
"Office Form A, Important Notice: Replacement of Life Insurance or
Annuities."
Section 9.
Incorporation by Reference.
(1) The following
material is incorporated by reference:
(a)
"Office Form A, Important Notice: Replacement of Life Insurance or Annuities",
April 2005;
(b) "Office Form b,
Notice Regarding Replacing Your Life Insurance Policy Or Annuity", April 2005;
and
(c) "Office Form C, Important
Notice: Replacement of Life Insurance or Annuities", April 2005.
(2) This material may be
inspected, copied, or obtained, subject to applicable copyright law, at the
Kentucky Office of Insurance, 215 West Main Street, Frankfort, Kentucky 40601,
Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on
the Office of Insurance Internet Web site at
http://doi.ppr.ky.gov.
STATUTORY AUTHORITY:
KRS
304.2-110