806 KAR 12:080. Life insurance; replacement of.

RELATES TO: KRS 304.12-030

STATUTORY AUTHORITY: KRS 304.2-110

NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner 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. This administrative regulation sets forth the procedures to be followed in the replacement or proposed replacement of life insurance policies.

Section 1. Purpose. The purpose of this administrative regulation is:

(1) To regulate the activities of insurers and agents with respect to the replacement of existing life insurance; and

(2) To protect the interests of life insurance policy owners by establishing procedures to be employed in the replacement or proposed replacement of existing life insurance.

Section 2. Definitions. For the purposes of this administrative regulation, the following terms shall have the meaning herein provided:

(1) "Replacement," "existing insurer," "existing life insurance," and "replacing insurer," are defined as in KRS 304.12-030.

(2) "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 "Notice Regarding Replacement of Life Insurance" as required by Section 4(2) of this administrative regulation from a replacing insurer. A conservation effort does not include such routine administrative procedures as late payment reminders, late payment offers or reinstatement offers.

(3) "Direct-response sales" means any sale of life insurance where the insurer does not utilize an agent in the sale or delivery of the policy.

(4) "Soliciting material" means written sales aids of all kinds, including policy summaries and comparison statements, which are used by an insurer, agent or broker in comparing existing life insurance to proposed life insurance in order to recommend the replacement or conservation of existing life insurance. Sales aids of a generally descriptive nature, which are maintained in the insurer's advertising compliance file, shall not be considered soliciting material.

Section 3. Exemptions. This administrative regulation shall not be applicable as set forth in KRS 304.12-030(4).

Section 4. Duties of Agents where Replacement is Involved. (1) Each replacing agent shall submit to the replacing insurer with or as part of each application for life insurance a statement signed by the applicant as to whether or not the proposed life insurance will replace existing life insurance.

(2) Where replacement is involved, the replacing agent shall present to the applicant, not later than at the time of taking the application a "Notice Regarding Replacement of Life Insurance," Form A, or a substantially similar form with prior approval of the commissioner. The notice must be signed by and left with the applicant.

(3) Where replacement is involved, the agent shall:

(a) Submit to the replacing insurer, with the application, a copy of the "Notice Regarding Replacement of Life Insurance" signed by the agent and the applicant, and a copy of all soliciting material used for presentation to the applicant.

(b) Leave with the applicant the original or a copy of all solicitation material used for presentation to the applicant.

Section 5. Duties of Replacing Insurers except for Direct Response Insurers. Each replacing insurer except direct response insurers shall:

(1) Inform its field representatives of the requirements of this administrative regulation and KRS 304.12-030;

(2) Require with or as part of each completed application for life insurance a statement signed by the applicant as to whether or not the proposed life insurance will replace existing life insurance; and

(3) Where replacement is involved require from the agent with the application for life insurance a copy of the "Notice Regarding Replacement of Life Insurance" signed by the agent and the applicant, and a copy of all soliciting material shown or delivered to the applicant.

(4) Where replacement is involved:

(a) Verify the substantial accuracy of information concerning the proposed policy furnished to the applicant in the soliciting material.

(b) Send the existing insurer notice of the proposed replacement within five (5) working days of the date the application is received at its home or regional office.

(c) Provide the existing insurer, upon request, copies of all soliciting materials used within twenty (20) days of receipt of said request.

(d) Delay the issuance of its policy for thirty (30) days after the notice of the proposed replacement required by paragraph (b) of this subsection is delivered to the existing insurer.

(e) Maintain copies of the "Notice Regarding Replacement of Life Insurance," and all soliciting material used, and a replacement register, cross indexed, by replacing agent and existing insurer, for at least three (3) years or until the conclusion of the next succeeding regular examination by the insurance department of its state of domicile, whichever is later.

Section 6. Duties of Insurer with Respect to Direct-response Sales. Each insurer shall:

(1) Inform its responsible personnel of the requirements of this administrative regulation.

(2) Require with or as part of each completed application for life insurance a statement signed by the applicant as to whether or not the proposed life insurance will replace existing life insurance.

(3) Request from the applicant, where replacement exists, with or as part of the application, a list of all existing life insurance that is being replaced identified by name of insurer and amount of coverage.

(4) Where replacement exists, provide at the time the policy is mailed to the applicant, a "Notice Regarding Replacement of Life Insurance," Form A, or a substantially similar form with prior approval of the commissioner.

(5) Where replacement exists, provide the existing insurer, upon request, copies of all soliciting materials used within twenty (20) days of receipt of said request.

Section 7. Duties of Existing Insurer and Its Agents. (1) Each existing insurer shall inform its responsible personnel of the requirements of this administrative regulation and KRS 304.12-030.

(2) Each existing insurer, or such insurer's agent, that undertakes a conservation effort shall:

(a) Request copies of all soliciting materials used by the replacing insurer or agent if such information is desired.

(b) Maintain a file containing all soliciting material used by it to conserve business. This file shall be retained for at least three (3) years or until the conclusion of the next succeeding regular examination by the insurance department of its state of domicile, whichever is later.

(3) When conserving existing life insurance each agent who uses soliciting material shall leave with the applicant the original or a copy of all soliciting material used in the conservation effort.

Section 8. Departmental Form A, entitled "Notice Regarding Replacement of Life Insurance," is filed herein by reference. Copies may be obtained from the Department of Insurance, P.O. Box 517, Frankfort, Kentucky 40602. (9 Ky.R. 655; Am. 789; 1004; eff. 2-2-83; 1236; eff. 6-1-83.)