1. (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 (g)(3) and (h) of this section, a permit holder must maintain and produce for examination the records as specified in this section. The permit holder:

   1. (1) must make the records available to the department for examination at the physical location in Texas that the permit holder has designated in written notice to the department on file at the time of the examination;
   2. (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 as may be requested during the examination in a manner that does not impede the efficient conduct of the examination; and
   3. (3) must maintain the records either in hard copy form or stored on microfiche or in an electronic database from which the record can be retrieved and printed in hard copy in a manner that does not impede the efficient conduct of the examination.

2. (b) General files. A permit holder subject to this section must maintain general files regarding its prepaid funeral benefits operations. The files must contain the original or a copy of the following:

   1. (1) each department-approved prepaid contract form currently used or approved for sales since the last examination, unless no outstanding contracts exist using the form;
   2. (2) all department-approved insurance depository letters pertaining to outstanding prepaid contracts;
   3. (3) if the permit holder is an insurance company or an entity that controls or is controlled by an insurance company, the most current consolidated financial statement or the most recent annual statement filed with the insurance regulatory agency of the insurance company's state of domicile;
   4. (4) the examination report acknowledgments, signed by the permit holder's board of directors, for the last examination report;
   5. (5) the Texas Department of Insurance (TDI) approval letter for each policy form issued to fund any outstanding prepaid contract or prepaid contract that was sold and has matured since the last examination;
   6. (6) a copy of the final post-conversion summary for each trust-to-insurance conversion approved by the department since the last examination;
   7. (7) all correspondence with the department since the last examination;
   8. (8) copies of all recordkeeping exceptions and other department or commissioner approvals or directions upon which the permit holder relies in connection with its current operations;
   9. (9) 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; and

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

       1. (A) general, casket, outer burial container, and urn price lists for the corresponding or contracted funeral provider; or
       2. (B) alternative documentation that demonstrates compliance with required casket, outer-burial container and urn merchandise descriptions.

3. (c) Individual files.

   1. (1) A permit holder subject to this section must maintain a prepaid contract file on each purchaser. 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 contract has been issued to the contract purchaser and the funding policy has been issued to the contract purchaser or policy owner within 30 days of the receipt of the initial down payment and insurance application.
   2. (2) Each file pertaining to an outstanding prepaid contract must contain a copy of the contract, any irrevocable assignments, and the data face sheet of the insurance policy or annuity contract funding the contract.

   3. (3) Each file pertaining to a matured prepaid contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding prepaid contract, and must also contain a fully completed department withdrawal form, or evidence of department withdrawal approval, or a proof of claim form prepared and completed by the permit holder which contains all the required information included on the department's prescribed withdrawal form. In addition:

      1. (A) a matured-contract file for which services were provided by the contracted funeral provider or under an executed successor provider assignment accepted by all contracting parties must contain:

         1. (i) the original or a final copy of the completed at-need contract or funeral purchase agreement, the cemetery interment order if the prepaid contract relates only to a grave opening and closing fee, outer burial container or other related merchandise and services, or an itemization of services performed and merchandise delivered; 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;
         2. (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;
         3. (iii) a copy of a certified death certificate;
         4. (iv) the certificate of performance of contract services executed by the decedent's personal representative;
         5. (v) evidence of payment of the policy(s) death benefits to the servicing funeral provider, e.g., a copy of payment check or check stub;
         6. (vi) documentation of premium payment history;
         7. (vii) documentation that reflects the balance owing, if any, on the funding policy(s) and the death benefits available at the time of claim; and
         8. (viii) if applicable, evidence of payment to the decedent's personal representative of any refund of contract overcharges by the provider.

      2. (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:

         1. (i) a signed assignment of benefits statement from the purchaser or purchaser's representative requesting the delivery of funds to the servicing funeral provider;
         2. (ii) evidence of payment to the servicing funeral provider;
         3. (iii) a copy of a certified death certificate; and
         4. (iv) documentation of premium payment history which reflects the balance owing, if any, on the funding policy(s) and the death benefits available at the time of claim.
   4. (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 of premium payment history to support the available cash surrender value, and evidence of payment of cancellation benefit, e.g., a copy of payment check or check stub.
   5. (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 copies of all documents required for an outstanding contract and a copy of the permit holder's letter to the purchaser informing the purchaser of contract status. The letter must state the date of the status change and, if applicable, the reduced death benefit coverage amount and the termination date of such coverage. The letter must also inform 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. Each reduced paid-up or extended term policy file must also include 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.

4. (d) Records. 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. (1) an historical contract register maintained chronologically or by policy number or by contract number reflecting all prepaid contracts and policies, and a notation of the status of the contracts and policies as outstanding, matured, canceled, or reduced paid-up. Contracts may be removed from the register when three years or more has elapsed from the date of final disposition. The contract register must be formatted in columns with headings that accurately describe the information set out in each column. The specific information required to be included in separate columns is:

      1. (A) the prepaid contract and corresponding policy number(s);
      2. (B) the prepaid contract purchase date;
      3. (C) the purchaser's name;
      4. (D) the beneficiary's name (if different from the purchaser's name);
      5. (E) the prepaid contract total; and
      6. (F) the final disposition of the prepaid contract, including notations as to whether the contract and policy are matured, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, or not taken. The notation must also include the date of withdrawal claim and the amount of funds paid; or, in lieu thereof, a record separate from the register, listing matured, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, or not taken contracts and policies for the examination period and setting out the contract and/or policy number, contract purchaser, date of the withdrawal claim paid, and amount of the withdrawal claim paid;
   2. (2) detailed individual payment receipt records to document the date of initial collection of the down payment on the funding application and subsequent premium payments from the contract purchaser by the permit holder or its agent;

   3. (3) an in-force policy register, maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. The in-force register must balance to the policy activity report required under paragraph (5) of this subsection, and must accumulate to grand totals for all policies with respect to the information required under subparagraphs (C), (E), (F), and (G) of this paragraph. The in-force register must be formatted in columns with headings that accurately describe the information set out in each column. The specific information required to be included in separate columns is:

      1. (A) the insured's name;
      2. (B) the policy number or numbers;
      3. (C) the prepaid contract total;
      4. (D) the date of policy issuance;
      5. (E) the death benefit, or insurance in force, whichever is applicable;
      6. (F) growth, e.g., dividends and interest, attributable to outstanding policies for the reporting period; and
      7. (G) cumulative growth totals for each outstanding policy;

   4. (4) reports detailing out-of-force and non-forfeiture policies, 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 policy activity report required under paragraph (5) of this subsection. The reports must be formatted in columns with headings that accurately describe the information set out in each column. The specific information required to be included in separate columns is:

      1. (A) the insured's name;
      2. (B) the date of policy issuance;
      3. (C) the policy number or numbers;
      4. (D) the date the policy matured, lapsed, or was surrendered or canceled; and
      5. (E) the amount of in-force coverage or face value of insurance that has been paid, reduced, deleted, or transferred.
   5. (5) an activity reconciliation report that shows the activity related to each policy that was identified in the in-force policy register required under paragraph (3) of this subsection and balances to the corresponding policy subsequently identified in the out-of-force and non-forfeiture policy reports required under paragraph (4) of this subsection. The permit holder must provide documentation to support the reported activity and may use the department's Annual Report Recapitulation of Policy Activity format to complete this report. The report must be balanced as of June 30 and December 31 of each year.
5. (e) Conversions. A permit holder subject to this section shall maintain a file copy of the original trust-funded prepaid funeral contracts that have been converted to insurance funding and the payment history records for each converted contract prior to conversion.
6. (f) Corporate records. Corporate records of a permit holder subject to this section pertaining to actual or anticipated regulatory action or litigation that could result in the permit holder's insolvency and all corporate minutes must be maintained and made available to the department at each examination.

7. (g) Exceptions.

   1. (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. (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. (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.
8. (h) 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 (i)(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.
9. (i) Maintenance of files. Documents and records required to be maintained under this section must be filed within 30 days of receipt. Cash and other forms of payments received must be posted within 30 days of receipt, and cash withdrawn on death maturity must be posted within 30 days of actual withdrawal.
10. (j) Disaster recovery plan. If required records are maintained electronically, the permit holder must provide evidence of a disaster recovery plan, or compliance with TDI business continuity planning requirements if applicable, that includes offsite data storage capabilities regarding all records and documentation related to prepaid contracts.

Source Note:The provisions of this §25.10 adopted to be effective November 8, 2007, 32 TexReg 7897.