SECTION 25.10. Recordkeeping Requirements for Insurance-Funded Contracts

(a) Application and general requirements. This section applies to a permit holder that sells or maintains insurance-funded prepaid funeral benefit contracts (prepaid contracts). Unless the commissioner grants an exception as provided for in subsections (f)(3) and (g) of this section, a permit holder must maintain and produce for examination the records as specified in this section. The permit holder:

(1) must make the records available to the department for examination at the physical location in Texas or if approved by the commissioner, in another state that the permit holder has designated in written notice to the department on file at the time of the examination;

(2) is required to make all the records specified in the department's pre-examination records request available to the department at the beginning of an examination and must produce such other records that provide additional clarification of required documents as may be requested during the examination in a manner that does not impede the efficient completion of the examination; and

(3) must maintain the records either in hard-copy form, in an electronic database, or on another form of media from which the record can be retrieved and printed in hard copy in a manner that does not impede the efficient completion of the examination.

(b) Corporate records. Corporate records of a permit holder subject to this section and all corporate minutes must be maintained and made available to the department at each examination.

(c) General files. A permit holder subject to this section must maintain and produce for department examination general files regarding its prepaid funeral benefits operations. The files must contain the original or a copy of the following:

(1) financial statements of the permit holder or the permit holder's parent or holding company including a balance sheet and income statement dated not later than the last day of the permit holder's preceding fiscal year, or the permit holder's most recent income tax return, or if the permit holder is an insurance company, the most recent statement filed with the insurance regulatory agency of the insurance company's state of domicile;

(2) if the permit holder received a uniform risk rating of 3, 4, or 5 at the last examination or if the last examination was a limited scope examination, the examination report acknowledgments, signed by the permit holder's board of directors, for the last examination report;

(3) the Texas Department of Insurance (TDI) approval letter and sample copy of policy form for each policy currently being issued to fund prepaid funeral contracts in the Texas preneed market;

(4) all written complaints received related to insurance-funded prepaid funeral contracts, documents related to any regulatory action, and documents evidencing litigation activity since the last examination;

(5) all recordkeeping exceptions and other department or commissioner approvals or directions upon which the permit holder relies in connection with its current operations;

(6) if the permit holder is an insurance company or an entity that controls or is controlled by an insurance company, a copy of the examination reports of the insurance regulatory agency of the insurance company's state of domicile for the period since the last examination, and the responses to the regulatory agency regarding examination report findings that are pertinent to the prepaid funeral benefits business, unless the law of the state of domicile prohibits disclosure of the examination reports and related correspondence to the department;

(7) for any outstanding prepaid contract with a funeral provider that has an issue date since the last examination, either:

(A) general, casket, outer burial container, and urn price lists for the corresponding or contracted funeral provider; or

(B) alternative documentation that demonstrates compliance with required casket, outer-burial container and urn merchandise descriptions;

(8) a list of funeral home providers for all outstanding contracts;

(9) a list of TDI licensed insurance agents currently selling for the permit holder; and

(10) a list of funeral home providers that are known to the permit holder to have ceased business since the last examination.

(d) Individual files.

(1) A permit holder subject to this section must maintain a file for each prepaid funeral contract. The file must either be maintained separately or be capable of retrieval separately for outstanding contracts and may be maintained either chronologically, alphabetically or serially by policy number. Each file must contain all correspondence pertaining to the contract, including documentation to evidence that the executed prepaid funeral contract has been issued to the contract purchaser and the funding policy has been issued to the policy owner within 30 days of the receipt of the initial down payment and insurance application.

(2) Each file pertaining to an outstanding prepaid funeral contract must contain a copy of the executed policy application, executed prepaid funeral contract, any irrevocable assignments, and the data face sheet of the insurance policy or annuity contract funding the prepaid funeral contract.

(3) Each file pertaining to a matured prepaid funeral contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding prepaid funeral contract. In addition:

(A) a matured-contract file for which services were provided by the contracted funeral provider or were provided under an assignment, by an agreed to Texas successor provider must contain:

(i) the original or a final copy of the completed at-need contract or funeral purchase agreement, itemization of services performed and merchandise delivered, or the interment order if the prepaid contract relates only to a grave opening and closing fee, outer burial container or other related merchandise and services. The document must be signed by the decedent's personal representative and indicate the prepaid credits and discounts applied and the balance due, if any, from the family at the time of death;

(ii) documentation to substantiate any upgrades or downgrades or discounts or credits given and to explain any differences between the prepaid and the at-need contracts;

(iii) a copy of a Texas certified death certificate or a death certificate from the state in which death occurred;

(iv) evidence of payment of the policy(s) death benefits to the servicing funeral provider;

(v) documentation that reflects the balance owing, if any, on the funding policy(s) and the death benefits available at the time of claim;

(vi) if applicable, evidence of payment to the decedent's personal representative of any refund of contract overcharges by the provider; and

(vii) pre-need to at-need reconciliation, which must be signed by the funeral provider, if the provider is not also the seller.

(B) a matured contract file for which services were provided by a person other than a person listed in subparagraph (A) of this paragraph must contain:

(i) a signed assignment of benefits statement from the purchaser or purchaser's representative requesting the delivery of funds to the servicing funeral provider;

(ii) evidence of payment to the servicing funeral provider;

(iii) a copy of a Texas certified death certificate or a death certificate from the state in which death occurred; and

(iv) documentation to support the death benefits available at the time of claim.

(4) Each file pertaining to a canceled prepaid contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding contract, a completed departmental withdrawal form or evidence of departmental withdrawal approval, documentation to support the available cash surrender value of the funding policy, and evidence of payment of cancellation benefit.

(5) Each file pertaining to a prepaid contract whose funding insurance policy has changed status since the last examination, for example, to a reduced paid-up, lapsed, or extended term insurance policy, must be retained for the period since the last examination. The file must contain:

(A) copies of all documents required for an outstanding contract;

(B) a copy of the permit holder's letter to the purchaser which:

(i) informs the purchaser of contract status;

(ii) states the date of the status change and, if applicable, the reduced death benefit coverage amount;

(iii) states the termination date of such coverage; and

(iv) informs the purchaser that the prepaid benefits may not be honored by the funeral provider due to the non-forfeiture or delinquent status of the funding policy; and

(C) for a reduced paid-up or extended term policy, copies of an election form indicating the purchaser has chosen reduced paid-up or extended term status, unless the policy has automatic non-forfeiture provisions.

(e) Reports. A permit holder subject to this section must maintain the following records regarding its prepaid funeral benefits operations for both new and conversion sales:

(1) a report detailing new business issued within the reporting period sorted by policy type and maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. The new issue report must balance to the reconciliation report required under paragraph (4) of this subsection. Information required to be in separate columns includes:

(A) the insured's name;

(B) the policy number or numbers;

(C) the prepaid contract total;

(D) the date of policy issuance; and

(E) the death benefit, or insurance in force, whichever is applicable.

(2) reports detailing out-of-force and non-forfeiture policies, sorted by policy type, and subtotaled in count and reduced coverage amount by status codes for death maturity, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, not taken, or such other codes which may be used to designate policies no longer in force, maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. If the reports cannot be sub-totaled, a separate report must be generated for each type of termination status or non-forfeiture change. The reports must balance to the reconciliation report required under paragraph (4) of this subsection. Information required to be in separate columns includes:

(A) the insured's name;

(B) the date of policy issuance;

(C) the policy number or numbers;

(D) the date the policy matured, lapsed, or was surrendered or canceled; and

(E) the death benefit amount that has been paid, reduced, deleted, or transferred.

(3) an in-force policy report, sorted by policy type and maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. The in-force report must balance to the reconciliation report required under paragraph (4) of this subsection. The report must provide the grand total number of policies or prepaid funeral contracts in force and the grand total of death benefit or insurance in force. Information required to be included in separate columns includes:

(A) the insured's name;

(B) the policy number or numbers;

(C) the prepaid contract total;

(D) the date of policy issuance;

(E) the death benefit, or insurance in force, whichever is applicable; and

(F) growth, e.g., dividends and interest, attributable to outstanding policies for the reporting period unless maintained on a separate report.

(4) a reconciliation report that shows the activity related to each policy that was identified in the new issue report required under paragraph (1) of this subsection and the out-of-force and non-forfeiture policy reports required under paragraph (2) of this subsection. In addition to the required reports detailed above, the permit holder must provide documentation to support any other changes to contract/policy count and/or death benefit reported. The ending totals of the respective reconciliation period for contract/policy count and death benefit reported, must balance to the totals on the corresponding in-force policy report required under paragraph (3) of this subsection. The permit holder may use the department's Annual Report Recapitulation of Policy Activity format to complete this report. The report must at a minimum be balanced as of June 30 and December 31 of each year; and

(5) a suspense report of all premiums being held on paid-up policies and premium paying policies where the premiums in suspense are equal to or greater than the modal premium amount.

(f) Exceptions.

(1) A permit holder that sells only insurance-funded contracts is not required to maintain records that are applicable only to trust-funded contracts.

(2) With respect to contracts sold prior to the effective date of this section, a permit holder will not violate this section if it cannot produce records required under this section which were not previously required by statute or rule. However, basic reporting of in-force benefit amounts and policy activity from the last examination date to the current examination date will be required of all permit holders for insurance companies that have outstanding insurance policies funding prepaid contracts in Texas.

(3) A permit holder may apply to the commissioner for an exception to the requirements of this section. An exception may be granted or revoked for good cause only by prior written direction of the commissioner.

(g) Relocation of records. Prior to changing the location where required records are maintained or where the examination is to be performed pursuant to §154.053(a) of the Texas Finance Code, a permit holder must notify the department, specifying the new address in writing, and, if the change in location requires the granting of an exception, comply with subsection (f)(3) of this section before required records are moved to the new location. The commissioner may revoke a records location if the commissioner determines that such action is necessary to effectively regulate the permit holder and examine the records.

(h) Maintenance of files. Documents and records required to be maintained under this section must be filed within 30 days of receipt. Cash withdrawn on death maturity must be posted within 30 days of actual withdrawal.

(i) Disaster recovery plan. If required records are maintained electronically, the permit holder must provide evidence of a disaster recovery plan, including documentation to substantiate periodic testing and test results or compliance with TDI business continuity planning requirements if applicable, that includes offsite data storage capabilities regarding all records and documentation related to prepaid funeral contracts.

Source Note: The provisions of this §25.10 adopted to be effective November 8, 2007, 32 TexReg 7897; amended to be effective July 8, 2010, 35 TexReg 5804; amended to be effective May 7, 2020, 45 TexReg 2829