Chapter
240
2008 -- H 7191 SUBSTITUTE A
Enacted 07/04/08
A N A C T
RELATING TO INSURANCE
Introduced By: Representatives Story, Savage, and Long
Date Introduced: January 23, 2008
It is
enacted by the General Assembly as follows:
SECTION
1. Section 27-1-2.1 of the General Laws in Chapter 27-1 entitled "Domestic
Insurance
Companies" is hereby amended to read as follows:
27-1-2.1.
Corporate governance standards. [Effective July 1, 2008.] -- (a) The
importance
of good corporate governance is crucial in promoting integrity in an insurance
company's
business practices and in maintaining public confidence and policyholder trust.
The
size and
ownership structure of a company often determines the corporate governance
standards
employed
by the company. All Rhode Island domestic insurers, regardless of their size or
ownership
structure, shall establish the following minimum corporate governance
standards:
(1) The board of directors must be comprised of a minimum of five (5) and a maximum
of
twenty-one (21) members.
(2) The board must meet at least two (2) times per year, however, four (4)
times per year
is
encouraged.
(3) The board must establish a written attendance policy.
(4) The board shall have authority to meet in executive session.
(5) There must be an audit committee established by and amongst the board of
directors
for the
purpose of overseeing the accounting and financial reporting processes of the
insurer and
audits
of the financial statement of the insurer. If no such committee exists, the
entire board of
directors
shall act as the audit committee.
(6) The board must review the minutes of the audit committee.
(7) The audit committee must meet at least two (2) times per year.
(8) There must be a written audit committee charter.
(9) At least one member of the audit committee must have knowledge of statutory
accounting
principles or generally accepted accounting principles.
(10) The internal audit function should have a direct reporting relationship to
the audit
committee
for critical matters such as the audit plan, resources and budgets.
(11) The audit committee must approve the selection of the independent auditor
that
performs
any audit required by the Rhode Island regulation governing annual audited
financial
reports.
(12) The audit committee shall require the independent accountant that performs
any
audit
required by Rhode Island regulation governing annual audited financial reports,
to timely
report
to the audit committee in accordance with the requirements of Statement of
Auditing
Standards
No. 61, communications with audit committee, or its replacement, including:
(i) All significant accounting policies and material permitted practices;
(ii) All material alternative treatments of financial information within
statutory
accounting
principles that have been discussed with management officials of the insurer,
ramifications
of the use of the alternative disclosures and treatments, and the treatment
preferred
by the
accountant; and
(iii) Other material written communications between the accountant and the
management
of the
insurer, such as any management letter or schedule of unadjusted differences.
(13) There must be a written code of ethics covering directors and officers
that includes
the
insurer's conflict of interest policy.
(14) There should be a written policy encouraging employees to come forward
with
observations
of improprieties or other malfeasance.
(15) On or after the effective date of this act no domestic insurer or any
affiliate member
of its
holding company system (as defined in section 27-35-1 et seq.) may extend or
maintain
credit,
arrange for the extension of credit, or renew an extension of credit in the
form of a
personal
loan to or for any director or officer of a domestic insurer. The terms and
purpose of any
such
existing extensions of credit made to any director or officer of a domestic insurer
must be
disclosed
to the director. For purposes of this subsection, benefits that are offered to
directors or
officers
as policyholders of a domestic insurer, or benefits that are offered to the
general public in
the
insurer's normal course of business, shall not be considered a violation of
this subsection.
(b) In addition to the standards enumerated in subsection (a) of this section,
the
following
corporate governance standards must be employed by all Rhode Island domestic
mutual
insurance companies and all domestic insurance companies writing more than one
hundred
million dollars ($100,000,000) in premium, in any jurisdiction, on a direct
and/or
assumed
basis, as determined at the end of the previous calendar year:
(1) The board must have an independent majority of members.
(2) The audit committee must have an independent majority of members.
(3) The audit committee must approve all related party transactions, which
include,
transaction
between the company and its affiliates and those between the company and its
officers
and
directors. The company may establish materiality thresholds, however, they must
be clearly
stated
in its audit committee charter as required by subdivision (a)(8), but in no
event shall the
materiality
thresholds exceed those established in chapter 35 of title 27.
(c) For purposes of this section, an independent board or audit committee
member is
defined
as an individual: (1) who is not being compensated by the domestic insurer or
any
company
within its holding company system ("organization"), other than any
reasonable
compensation
and benefits for services as a director, and has not been compensated within
the
past
twelve (12) months including full-time and part-time compensation as an employee
or an
independent
contractor, except for reasonable compensation as a director; (2) whose own
compensation
is not determined by individuals who are compensated by the organization,
except
for
reasonable compensation paid to the director; (3) who does not receive material
financial
benefits;
(i.e. service contracts, grants or other payments) from the organization; or
(4) who is not
related
to (as a spouse, sibling, parent, or child) or the domestic partner of an
individual
compensated
by or who receives material financial benefits from the organization.
Policyholders
of a
domestic insurer may be considered independent providing they meet the
requirements as
defined
in this subsection.
(d) Any Rhode Island domestic insurer that does not currently employ one or
more of the
standards
enumerated in subsections (a) and (b) of this section, must submit a plan of
corrective
action
to the director for his or her approval. The director, at his or her
discretion, may waive any
of the
requirements in this section for a period not exceeding thirty-six (36) months.
The
director's
refusal to approve a plan of corrective action after reviewing such plan of
corrective
action
for a period of sixty (60) days shall, constitute a final order for purposes of
the Rhode
Island
administrative procedures act allowing the party to appeal to the superior
court.
(e) Nothing contained in the company's by-laws shall conflict with the
corporate
governance
standards set forth in this act. Any amendments to a domestic insurance
company's
by-laws
shall be submitted in writing to the department.
(f) A domestic insurer that is a member of an insurance holding company system
as
defined
in chapter 35 of title 27, is exempt from this section if it can demonstrate
that it is ,or is
controlled
by an entity that either is required to be compliant with, or voluntarily is
compliant
with,
all of the following provisions of the Sarbanes-Oxley Act of 2002; (i) the
preapproval
requirements
of section 201 (section 10A(i) of the Securities Exchange Act of 1934); (ii)
the audit
committee
independence requirements of section 301 (section 10A(m)(3) of the Securities
Exchange
Act of 1934); and (iii) the internal control over financial reporting
requirements of
section
404 (Item 308 of SEC regulation S-K) -- ("SOX Compliant Entity"). If
the department
makes a
determination, as a result of its statutory examination or financial analysis,
that the
domestic
insurer is not controlled by a SOX Compliant entity or that the insurer's
interests and
affairs
are not adequately considered and evaluated by the SOX Compliant Entity, the
domestic
insurer
must take steps to comply with this act.
(g) A Rhode Island domestic insurer that is a wholly-owned subsidiary of another
Rhode
Island
domestic insurer that is compliant with the provisions of subsection A, and if
applicable
the
requirements of subsection B, shall be exempt from compliance with any other
requirements
of this
act.
(h) The requirements of this section, 27-1-2.1, shall not apply to entities
regulated
pursuant
to chapters 19, 20, 20.1, 20.2, 20.3 and 41 of title 27 and shall not supercede
or replace
any
specific statutory corporate governance standards otherwise applicable to
domestic insurance
companies.
SECTION
2. Sections 27-4-6.1 and 27-4-6.2 of the General Laws in Chapter 27-4
entitled
"Life Insurance Policies and Reserves" are hereby amended to read as
follows:
27-4-6.1.
Right to examine and return policy. -- Every individual life insurance
policy
delivered
or issued for delivery in this state after July 1, 1978, and every individual
annuity
contract
delivered in this state after January 1, 1995, shall contain a provision, or in
a separate
rider attached
when delivered, stating in substance that the person to whom the policy or
contract
is
issued shall be permitted to return the policy or contract within a minimum of
ten (10) days of
its
delivery to that person and to have a refund of the premium paid, if after
examination of the
policy
or contract the purchaser is not satisfied with it for any reason. Every
individual life
insurance
policy and every individual annuity contract delivered in this state after
January 1,
20072008, shall
contain a provision, or in a separate rider attached when delivered, stating in
substance
that the person to whom the policy or contract is issued shall be permitted to
return the
policy
or contract within a minimum of twenty (20) days of its delivery to that person
and to have
a refund
of the premium paid, if after examination of the policy or contract the
purchaser is not
satisfied
with it for any reason. The provision shall be set forth in the policy or
contract under an
appropriate
caption and, if not printed on the face page of the policy or contract,
adequate notice
of the
provision shall be printed or stamped conspicuously on the face page. The
policy or
contract
may be returned to the insurer at its home or branch office or to the insurance
producer
through
whom it was applied for, and then shall be void as from the beginning and as if
the policy
or
contract had not been issued.
27-4-6.2.
Individual life insurance policy standard provisions. -- (a) All
individual life
insurance
policies, except as otherwise stated herein, delivered or issued for delivery
in this state
on or
after January 1, 20072008 shall contain in substance the
following provisions, or provisions
which
the director deems to be more favorable to policyholders.
(1) Grace period. - A provision that, after payment of the first premium, the
policyholder
is
entitled to a grace period of thirty-one (31) days or of one month following
any subsequent
premium
due date within which to make payment of the premium then due, during which
grace
period
the policy shall continue in full force, and the policy shall further provide
that if the death
of the
insured occurs within the grace period provided in the policy, the insurer may
deduct from
the
policy proceeds the portion of any unpaid premium applicable to the period
ending with the
last day
of the policy month in which such death occurred, and if the death of the
insured occurs
during a
period for which the premium has been paid, the insurer shall add to the policy
proceeds
a refund
of any premium actually paid for any period beyond the end of the policy month
in
which
such death occurred, provided such premium was not waived under any policy
provision
for
waiver of premiums benefit. This subsection shall not apply to single premium
or paid-up
policies.
(2) Incontestability. - A provision that the policy shall be incontestable
after being in
force
during the lifetime of the insured for a period of two (2) years from its date
of issue, and
that, if
the policy provides that the death benefit provided by the policy may be
increased, or
other
policy provisions changed, upon the application of the policyholder and the
production of
evidence
of insurability, the policy with respect to each such increase or change shall
be
incontestable
after two (2) years from the effective date of such increase or change, except
in
each
case for nonpayment of premiums. At the option of the insurer, provisions
relating to
benefits
for total and permanent disability and additional benefits for accidental death
may be
excepted.
(b) Individual life insurance policies delivered or issued for delivery in this
state on or
after
January 1, 2007 2008 may contain in substance the following
provision, or a provision
which the
director deems to be more favorable to policyholders: Suicide -- a provision
that
excludes
death from suicide, sane or insane. The suicide exclusion period for the
initial coverage
shall not
exceed two (2) years from the date of issue of the policy. The policy may allow
a
separate
suicide period, no greater than two (2) years from the date of any increase,
for any
increase
in specified amount that was requested by the owner and subject to evidence of
insurability.
The suicide limitation shall be limited to the amount of the increase. At a
minimum,
a refund
of all premiums paid, less dividends paid, any indebtedness and any partial
withdrawals,
shall be
paid by the company in the event of death by suicide during the initial suicide
exclusion
period.
For each increase in specified amount, the settlement for suicide shall be the
return of all
premium
paid, reduced as specified above for the initial coverage, applicable to the
increased
amount.
SECTION
3. This act shall apply retroactively to June 27, 2007.
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LC00546/SUB A
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