11 NCAC 12 .0607 DUTIES OF INSURERS THAT USE AGENTS OR BROKERS (effective until August 1, 2004)
Each insurer that uses an agent or broker in a life insurance or annuity sale shall:
(1) Require with or as part of each completed applicant for life insurance or annuity, a statement signed by the agent or broker as to whether he or she knows replacement is or may be involved in the transaction.
(2) Where a replacement is involved:
(a) Require from the agent or broker with the application for life insurance or annuity:
(i) a list of all of the applicant's existing life insurance or annuity to be replaced; and
(ii) a copy of the Replacement Notice provided the applicant pursuant to 11 NCAC 12 .0605(b)(1).
Such existing life insurance or annuity shall be identified by name of insurer, insured and contract number. If a number has not been assigned by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.
(b) Send to each existing insurer a written communication advising of the replacement or proposed replacement and the identification information obtained pursuant to 11 NCAC 12 .0607(2)(a) and a Policy Summary, Contract Summary or ledger statement containing Policy Data as required by G.S. 58-60-1 through G.S. 58-60-30 and for an annuity a contract summary as required in 11 NCAC 12 .0607(2)(c). Cost indices and equivalent level annual dividend figures need not be included in the Policy Summary or ledger statement. The aforementioned Policy Summary, Contract Summary or ledger statement shall be based upon the EXACT face amount, plan, premium and supplemental riders or agreements, if any, contained in the applicant's application to the replacing insurer. In the event that multiple applications are made by or for an applicant, Policy Summary, Contract Summary or ledger statement shall be provided for each. All required items shall be sent within five working days of the date the application is received in the replacing insurer's home or regional office, or the date the proposed policy or contract is issued, whichever is sooner.
(c) Where annuities are involved, the Contract Summary must be a separate document. All information required to be disclosed must be set out in such a manner as not to minimize or render any portion thereof obscure. Any amounts which remain level for two or more contract years may be represented by a single number if it is clearly indicated what amounts are applicable for each contract year. Amounts in items (2)(c)(i) and (iii) in this Rule, in the case of flexible premium annuity contracts, shall be determined either according to an anticipated pattern of consideration payments of on the assumption that considerations payable will be one hundred dollars ($100.00) a month or one thousand dollars ($1,000.00) a year. "Contract Summary" means a written statement describing the elements of the annuity contract and deposit fund, including but not limited to where applicable, the following items:
(i) One of the options under the contract available for annuity payout.
(ii) A prominent statement that the contract does not provide cash surrender values if such is the case.
(iii) The following amounts, where applicable, for the first ten contract years and representative contract years thereafter sufficient to clearly illustrate the patterns of considerations and benefits, including but not limited to, the twentieth contract year and at least one year from age 60 to 70 and at the scheduled commencement of annuity payments:
(A) The gross annual or single consideration for the annuity contract. Any additional considerations for optional benefits, such as disability premium waiver, should be shown separately.
(B) Scheduled annual or single deposit for the deposit fund, if any.
(C) The total guaranteed death benefit and cash surrender value at the end of the year or, if no guaranteed cash surrender values are provided, the total guaranteed paid‑up annuity at the end of the year. Values for deposit fund must be shown separately from those for a basic contract.
(D) The total illustrative death benefit and cash surrender value or paid‑up annuity at the end of the year, not greater in amount than that based on:
(I) the current dividend scale and the interest rate credited by the insurer, and
(II) current annuity purchase rates.
A dividend scale or excess interest rate which has been publicly declared by the insurer with an effective date not more than two months subsequent to the date of declaration shall be considered a current dividend scale or current excess interest rate.
(iv) A Contract Summary which includes values based on the current dividend scale or the current dividend accumulation or excess interest rate, and a statement that such values are for illustration and are not guaranteed.
(v) A statement of the interest rates used in calculating the guaranteed and illustrative contract or fund values.
(vi) The date on which the Contract Summary is prepared.
(d) Each existing insurer or such insurer's agent or broker that undertakes a conversion shall furnish the policy‑owner with a Policy Summary for the existing life insurance or ledger statement containing Policy Data on the existing policy and/or annuity. Such Policy Summary or ledger statement shall be completed in accordance with the provisions of G.S. 58-60-1 through G.S. 58-60-30, except that information relating to premiums, cash values, death benefits and dividends, if any, shall be computed from the current policy year of the existing life insurance. The Policy Summary or ledger statement shall include the amount of any outstanding indebtedness, and the sum of any dividend accumulations or additions, and may include any other information that is not in violation of any regulation or statute. Cost indices and equivalent level annual dividend figures need not be included. When annuities are involved, the disclosure information shall be that required in Subparagraph (2)(c) in this Rule. The replacing insurer may request the existing insurer to furnish it with a copy of the Summaries or ledger statement, which shall be done within five working days of the receipt of the request.
(3) The replacing insurer shall maintain evidence of the "Notice Regarding Replacement", the Policy Summary, the Contract Summary and any ledger statements used, and a replacement register, listing the replacing agent and existing insurer to be replaced. The existing insurer shall maintain evidence of Policy Summaries, Contract Summaries or ledger statements used in any conversion. Evidence that all requirements were met shall be maintained for at least three years or until the conclusion of the next succeeding regular examination by the Insurance Department of its state of domicile, whichever is earlier.
(4) The replacing insurer shall provide in its policy or in a separate written notice which is delivered with the policy a statement that the applicant has a right to an unconditional refund of all premiums paid, which right may be exercised within a period of twenty days commencing from the date of delivery of the policy.
(5) Registered contracts shall be exempt from the requirements of 11 NCAC 12 .0607(2)(b),(c) and (d) requiring provision of Policy Summary or ledger statement information; however, premium or contract contribution amounts and identification of the appropriate prospectus or offering circular shall be required in lieu thereof.
History Note: Authority G.S. 58-2-40; 58-3-115; 58-58-1; 58-58-40;
Eff. October 1, 1985;
Amended Eff. April 8, 2002; November 1, 1989.
11 NCAC 12 .0607 DUTIES OF INSURERS THAT USE Producers (effective August 1, 2004)
Each insurer shall:
(1) Maintain a system of supervision and control to insure compliance with the requirements of the rules in this section that shall include the following:
(a) Information to its producers of the requirements of the rules in this section and incorporation of the requirements of the rules in this Section into all relevant producer training manuals prepared by the insurer;
(b) Provision to each producer of a written statement of the company's position with respect to the acceptability of replacements providing guidance to its producer as to the appropriateness of these transactions;
(c) A system to review the appropriateness of each replacement transaction that the producer does not indicate is in accord with Sub-item (1)(b) of this Rule.
(d) Procedures to confirm that the requirements of the rules in this Section 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 producer. Compliance may include systematic customer surveys, interviews, confirmation letters, or programs of internal monitoring;
(2) Have the capacity to monitor each producer's life insurance policy and annuity contract replacements for that insurer, and shall produce, upon request, and make such records available to the Department. The capacity to monitor shall include the ability to produce records for each producer's:
(a) Life replacements, including financed purchases, as a percentage of the producer's total annual sales for life insurance;
(b) Number of lapses of policies by the producer as a percentage of the producer's total annual sales for life insurance;
(c) Annuity contract replacements as a percentage of the producer'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 company's monitoring system as required by Sub-item (1)(e) of this Rule; and
(e) Replacements, indexed by replacing producer 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 producer 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 required in 11 NCAC 12 .0611;
(5) When the applicant has existing policies or contracts, be able to produce copies of any sales material required by 11 NCAC 12 .0605(e), the basic illustration and any supplemental illustrations related to the specific policy or contract that is purchased, and the producer's and applicant's signed statements with respect to financing and replacement for at least five years after the termination or expiration of the proposed policy or contract;
(6) Ascertain that the sales material and illustrations required by 11 NCAC 12 .0605(e) meet the requirements of the rules in this Section and are complete and accurate for the proposed policy or contract;
(7) If an application does not meet the requirements of the rules in this Section, notify the producer and applicant and fulfill the outstanding requirements; and
(8) Maintain records in paper, photograph, micro process, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.
History Note: Authority G.S. 58-2-40; 58-3-115; 58-58-1; 58-58-40;
Eff. October 1, 1985;
Amended Eff. August 1, 2004; April 8, 2002; November 1, 1989.