31.09.05.05

.05 Duties of Insurers that Use Insurance Producers.

A. System of Supervision and Control.

(1) An insurer shall maintain a system of supervision and control to ensure compliance with the requirements of this chapter that includes, at a minimum, procedures to:

(a) Inform its insurance producers of the requirements of this regulation and incorporate the requirements of this regulation into all relevant insurance-producer training manuals prepared by the insurer;

(b) Provide to each insurance producer a written statement of the insurer's position with respect to the acceptability of replacements that provides guidance to its insurance producer as to the appropriateness of these transactions;

(c) Review the appropriateness of each replacement transaction that the insurance producer does not indicate is in accord with §A(1)(b) of this regulation;

(d) Confirm that the requirements of this regulation have been met; and

(e) Detect transactions that are replacements of existing life insurance policies or existing annuity contracts by the existing insurer, but that have not been reported as replacements by the applicant or insurance producer.

(2) Compliance with this section may include systematic customer surveys, interviews, confirmation letters, and programs of internal monitoring.

B. Capacity to Monitor Replacements.

(1) An insurer shall:

(a) Have the capacity to monitor each insurance producer's life insurance policy and annuity contract replacements for that insurer; and

(b) On request, make all records regarding replacements available for inspection by the Commissioner.

(2) The capacity to monitor shall include the ability to produce records for each insurance producer's:

(a) Life insurance replacements, including financed purchases, as a percentage of the insurance producer's total annual sales for life insurance;

(b) Number of lapses of life insurance policies as a percentage of the insurance producer's total annual sales for life insurance;

(c) Annuity contract replacements as a percentage of the insurance producer's total annual annuity contract sales;

(d) Number of transactions that are unreported replacements of existing life insurance policies or existing annuity contracts by the existing insurer detected by the insurer's monitoring system as required by §A(1)(e) of this regulation; and

(e) Replacements, indexed by replacing insurance producer and existing insurer.

C. Signed Statement and Notice. An insurer shall require with or as a part of each application for life insurance or an annuity:

(1) A statement signed by the applicant and insurance producer indicating whether the applicant has an existing life insurance policy or existing annuity contract; and

(2) If the applicant has an existing life insurance policy or existing annuity contract, a completed notice regarding replacements as contained in Regulation .10 of this chapter.

D. Production of Information. If an applicant has an existing life insurance policy or existing annuity contract, an insurer shall be able to produce copies of the following items for at least 5 years after the termination or expiration of the proposed life insurance policy or annuity contract:

(1) The sales material required by Regulation .04F of this chapter;

(2) The basic illustration and any supplemental illustrations related to the specific life insurance policy or annuity contract that is purchased; and

(3) The insurance producer's and applicant's signed statements with respect to financing and replacement.

E. Sales Material and Illustrations. An insurer shall ascertain and ensure that the sales material and illustrations required by Regulation .04F of this chapter:

(1) Meet the requirements of this regulation; and

(2) Are complete and accurate for the proposed life insurance policy or annuity contract.

F. Application That Does Not Meet Requirements. If an application does not meet the requirements of this regulation, an insurer shall:

(1) Notify the insurance producer and applicant; and

(2) Fulfill the outstanding requirements.

G. Record Keeping. An insurer shall maintain records in paper, photograph, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.