Bill Text: FL S1476 | 2012 | Regular Session | Comm Sub
Bill Title: Annuities
Spectrum: Bipartisan Bill
Status: (Failed) 2012-03-09 - Died in Budget Subcommittee on General Government Appropriations [S1476 Detail]
Download: Florida-2012-S1476-Comm_Sub.html
Florida Senate - 2012 CS for SB 1476
By the Committee on Banking and Insurance; and Senator Richter
597-03048A-12 20121476c1
1 A bill to be entitled
2 An act relating to annuities; amending s. 627.4554,
3 F.S.; providing that recommendations relating to
4 annuities made by an insurer or its agents apply to
5 all consumers not just to senior consumers; revising
6 and providing definitions; revising the duties of
7 insurers and agents; providing that recommendations
8 must be based on consumer suitability information;
9 revising the information relating to annuities that
10 must be provided by the insurer or its agent to the
11 consumer; revising the requirements for monitoring
12 contractors that are providing certain functions for
13 the insurer relating to the insurer’s system for
14 supervising recommendations; revising provisions
15 relating to the relationship between the act and the
16 federal Financial Industry Regulatory Authority;
17 deleting a provision providing a cap on surrender or
18 deferred sales charges; prohibiting specified charges
19 for annuities issued to persons 65 years of age or
20 older; amending s. 626.99, F.S.; increasing the period
21 of time that an unconditional refund must remain
22 available with respect to certain annuity contracts;
23 making such unconditional refunds available to all
24 prospective annuity contract buyers without regard to
25 the buyer’s age; revising requirements for cover pages
26 of annuity contracts; providing an effective date.
27
28 Be It Enacted by the Legislature of the State of Florida:
29
30 Section 1. Section 627.4554, Florida Statutes, is amended
31 to read:
32 (Substantial rewording of section. See
33 s. 627.4554, F.S., for present text.)
34 627.4554 Annuity investments.—
35 (1) PURPOSE.—The purpose of this section is to require
36 insurers to set forth standards and procedures for making
37 recommendations to consumers which result in transactions
38 involving annuity products, and to establish a system for
39 supervising such recommendations in order to ensure that the
40 insurance needs and financial objectives of consumers are
41 appropriately addressed at the time of the transaction.
42 (2) SCOPE.—This section applies to any recommendation made
43 to a consumer to purchase, exchange, or replace an annuity by an
44 insurer or its agent, and which results in the purchase,
45 exchange, or replacement recommended.
46 (3) DEFINITIONS.—As used in this section, the term:
47 (a) “Agent” has the same meaning as provided in s. 626.015.
48 (b) “Annuity” means an insurance product under state law
49 which is individually solicited, whether classified as an
50 individual or group annuity.
51 (c) “FINRA” means the Financial Industry Regulatory
52 Authority or a succeeding agency.
53 (d) “Insurer” has the same meaning as provided in s.
54 624.03.
55 (e) “Recommendation” means advice provided by an insurer or
56 its agent to a consumer which results in the purchase, exchange
57 or replacement of an annuity in accordance with that advice.
58 (f) “Replacement” means a transaction in which a new policy
59 or contract is to be purchased and it is known or should be
60 known to the proposing insurer or its agent that by reason of
61 such transaction an existing policy or contract will be:
62 1. Lapsed, forfeited, surrendered or partially surrendered,
63 assigned to the replacing insurer, or otherwise terminated;
64 2. Converted to reduced paid-up insurance, continued as
65 extended term insurance, or otherwise reduced in value due to
66 the use of nonforfeiture benefits or other policy values;
67 3. Amended so as to effect a reduction in benefits or the
68 term for which coverage would otherwise remain in force or for
69 which benefits would be paid;
70 4. Reissued with a reduction in cash value; or
71 5. Used in a financed purchase.
72 (g) “Suitability information” means information related to
73 the consumer that is reasonably appropriate to determine the
74 suitability of a recommendation made to the consumer, including
75 the following:
76 1. Age;
77 2. Annual income;
78 3. Financial situation and needs, including the financial
79 resources used for funding the annuity;
80 4. Financial experience;
81 5. Financial objectives;
82 6. Intended use of the annuity;
83 7. Financial time horizon;
84 8. Existing assets, including investment and life insurance
85 holdings;
86 9. Liquidity needs;
87 10. Liquid net worth;
88 11. Risk tolerance; and
89 12. Tax status.
90 (4) EXEMPTIONS.—This section does not apply to transactions
91 involving:
92 (a) Direct-response solicitations where there is no
93 recommendation based on information collected from the consumer
94 pursuant to this section;
95 (b) Contracts used to fund:
96 1. An employee pension or welfare benefit plan that is
97 covered by the federal Employee Retirement and Income Security
98 Act;
99 2. A plan described by s. 401(a), s. 401(k), s. 403(b), s.
100 408(k), or s. 408(p) of the Internal Revenue Code, if
101 established or maintained by an employer;
102 3. A government or church plan defined in s. 414 of the
103 Internal Revenue Code, a government or church welfare benefit
104 plan, or a deferred compensation plan of a state or local
105 government or tax-exempt organization under s. 457 of the
106 Internal Revenue Code;
107 4. A nonqualified deferred compensation arrangement
108 established or maintained by an employer or plan sponsor;
109 5. Settlements or assumptions of liabilities associated
110 with personal injury litigation or any dispute or claim
111 resolution process; or
112 6. Formal prepaid funeral contracts.
113 (5) DUTIES OF INSURERS AND AGENTS.—
114 (a) When recommending the purchase or exchange of an
115 annuity to a consumer which results in an insurance transaction
116 or series of insurance transactions, the agent, or the insurer
117 where no agent is involved, must have reasonable grounds for
118 believing that the recommendation is suitable for the consumer,
119 based on the consumer’s suitability information, and that there
120 is a reasonable basis to believe all of the following:
121 1. The consumer has been reasonably informed of various
122 features of the annuity, such as the potential surrender period
123 and surrender charge; potential tax penalty if the consumer
124 sells, exchanges, surrenders, or annuitizes the annuity;
125 mortality and expense fees; investment advisory fees; potential
126 charges for and features of riders; limitations on interest
127 returns; insurance and investment components; and market risk.
128 2. The consumer would benefit from certain features of the
129 annuity, such as tax-deferred growth, annuitization, or the
130 death or living benefit.
131 3. The particular annuity as a whole, the underlying
132 subaccounts to which funds are allocated at the time of purchase
133 or exchange of the annuity, and riders and similar product
134 enhancements, if any, are suitable; and, in the case of an
135 exchange or replacement, the transaction as a whole is suitable
136 for the particular consumer based on his or her suitability
137 information.
138 4. In the case of an exchange or replacement of an annuity,
139 the exchange or replacement is suitable after considering
140 whether the consumer:
141 a. Will incur a surrender charge; be subject to the
142 commencement of a new surrender period; lose existing benefits,
143 such as death, living, or other contractual benefits; or be
144 subject to increased fees, investment advisory fees, or charges
145 for riders and similar product enhancements;
146 b. Would benefit from product enhancements and
147 improvements; and
148 c. Has had another annuity exchange or replacement, in
149 particular, an exchange or replacement within the preceding 36
150 months.
151 (b) Before executing a purchase, exchange, or replacement
152 of an annuity resulting from a recommendation, an insurer or its
153 agent must make reasonable efforts to obtain the consumer’s
154 suitability information. The information shall be collected on
155 form DFS-H1-1980, which is hereby incorporated by reference, and
156 completed and signed by the applicant and agent. Questions
157 requesting this information must be presented in at least 12
158 point type and be sufficiently clear so as to be readily
159 understandable by both the agent and the consumer. A true and
160 correct executed copy of the form must be provided by the agent
161 to the insurer, or to the person or entity that has contracted
162 with the insurer to perform this function as authorized by this
163 section, within 10 days after execution of the form, and must be
164 provided to the consumer by the date of delivery of the contract
165 or contracts.
166 (c) Except as provided under paragraph (d), an insurer may
167 not issue an annuity recommended to a consumer unless there is a
168 reasonable basis to believe the annuity is suitable based on the
169 consumer’s suitability information.
170 (d) An insurer’s issuance of an annuity must be reasonable
171 based on all the circumstances actually known to the insurer at
172 the time the annuity is issued. However, an insurer or its agent
173 does not have an obligation to a consumer related to an annuity
174 transaction under paragraph (a) or paragraph (c) if:
175 1. A recommendation has not been made;
176 2. A recommendation was made and is later found to have
177 been based on materially inaccurate information provided by the
178 consumer;
179 3. A consumer refuses to provide relevant suitability
180 information and the annuity transaction is not recommended; or
181 4. A consumer decides to enter into an annuity transaction
182 that is not based on a recommendation of an insurer or its
183 agent.
184 (e) At the time of sale, the agent or the agent’s
185 representative must:
186 1. Make a record of any recommendation made to the consumer
187 pursuant to paragraph (a);
188 2. Obtain the consumer’s signed statement documenting his
189 or her refusal to provide suitability information, if
190 applicable; and
191 3. Obtain the consumer’s signed statement acknowledging
192 that an annuity transaction is not recommended if he or she
193 decides to enter into an annuity transaction that is not based
194 on the insurer’s or its agent’s recommendation, if applicable.
195 (f) Before executing a replacement or exchange of an
196 annuity contract resulting from a recommendation, the agent must
197 provide on form DFS-H1-1981, which is incorporated by reference,
198 information that compares the differences between the existing
199 annuity contract and the annuity contract being recommended in
200 order to determine the suitability of the recommendation and its
201 benefit to the consumer. A true and correct executed copy of
202 this form must be provided by the agent to the insurer, or to
203 the person or entity that has contracted with the insurer to
204 perform this function as authorized by this section, within 10
205 days after execution of the form, and must be provided to the
206 consumer by the date of delivery of the contract or contracts.
207 (g) An insurer shall establish a supervision system that is
208 reasonably designed to achieve the insurer’s and its agent’s
209 compliance with this section.
210 1. Such system must include, but is not limited to:
211 a. Maintaining reasonable procedures to inform its agents
212 of the requirements of this section and incorporating those
213 requirements into relevant agent training manuals;
214 b. Establishing standards for agent product training;
215 c. Providing product-specific training and training
216 materials that explain all material features of its annuity
217 products to its agents;
218 d. Maintaining procedures for the review of each
219 recommendation before issuance of an annuity which are designed
220 to ensure that there is a reasonable basis for determining that
221 a recommendation is suitable. Such review procedures may use a
222 screening system for identifying selected transactions for
223 additional review and may be accomplished electronically or
224 through other means, including, but not limited to, physical
225 review. Such electronic or other system may be designed to
226 require additional review only of those transactions identified
227 for additional review using established selection criteria;
228 e. Maintaining reasonable procedures to detect
229 recommendations that are not suitable. These may include, but
230 are not limited to, confirmation of consumer suitability
231 information, systematic customer surveys, consumer interviews,
232 confirmation letters, and internal monitoring programs. This
233 sub-subparagraph does not prevent an insurer from using sampling
234 procedures or from confirming suitability information after the
235 issuance or delivery of the annuity; and
236 f. Annually providing a report to senior managers,
237 including the senior manager who is responsible for audit
238 functions, which details a review, along with appropriate
239 testing, which is reasonably designed to determine the
240 effectiveness of the supervision system, the exceptions found,
241 and corrective action taken or recommended, if any.
242 2. An insurer is not required to include in its supervision
243 system agent recommendations to consumers of products other than
244 the annuities offered by the insurer.
245 3. An insurer may contract for performance of a function
246 required under subparagraph 1.
247 a. If an insurer contracts for the performance of a
248 function, the insurer must include the supervision of
249 contractual performance as part of those procedures listed in
250 subparagraph 1. These include, but are not limited to:
251 (I) Monitoring and, as appropriate, conducting audits to
252 ensure that the contracted function is properly performed; and
253 (II) Annually obtaining a certification from a senior
254 manager who has responsibility for the contracted function that
255 the manager has a reasonable basis for representing that the
256 function is being properly performed.
257 b. An insurer is responsible for taking appropriate
258 corrective action and may be subject to sanctions and penalties
259 pursuant to subsection (7) regardless of whether the insurer
260 contracts for performance of a function and regardless of the
261 insurer’s compliance with sub-subparagraph a.
262 (h) An agent may not dissuade, or attempt to dissuade, a
263 consumer from:
264 1. Truthfully responding to an insurer’s request for
265 confirmation of suitability information;
266 2. Filing a complaint; or
267 3. Cooperating with the investigation of a complaint.
268 (i) Sales made in compliance with FINRA requirements
269 pertaining to the suitability and supervision of annuity
270 transactions must satisfy the requirements of this section. This
271 paragraph applies to FINRA broker-dealer sales of variable
272 annuities and fixed annuities if the suitability and supervision
273 is similar to those applied to variable annuity sales. However,
274 this paragraph does not limit the ability of the office or the
275 department to enforce, including investigate, the provisions of
276 this section. For this paragraph to apply, an insurer must:
277 1. Monitor the FINRA member broker-dealer using information
278 collected in the normal course of an insurer’s business; and
279 2. Provide to the FINRA member broker-dealer information
280 and reports that are reasonably appropriate to assist the FINRA
281 member broker-dealer in maintaining its supervision system.
282 (6) RECORDKEEPING.—
283 (a) Insurers and agents must maintain or be able to make
284 available to the office or department records of the information
285 collected from the consumer and other information used in making
286 the recommendations that were the basis for insurance
287 transactions for 5 years after the insurance transaction is
288 completed by the insurer. An insurer may maintain the
289 documentation on behalf of its agent.
290 (b) Records required to be maintained under this subsection
291 may be maintained in paper, photographic, microprocess,
292 magnetic, mechanical, or electronic media, or by any process
293 that accurately reproduces the actual document.
294 (7) COMPLIANCE MITIGATION; PENALTIES.—
295 (a) An insurer is responsible for compliance with this
296 section. If a violation occurs because of the action or inaction
297 of the insurer or its agent, the office may order an insurer to
298 take reasonably appropriate corrective action for a consumer
299 harmed by the insurer’s or by its agent’s violation of this
300 section and may impose appropriate penalties and sanctions.
301 (b) The department may order:
302 1. An insurance agent to take reasonably appropriate
303 corrective action, including monetary restitution of penalties
304 or fees incurred by the consumer for any consumer harmed by a
305 violation of this section by the insurance agent and impose
306 appropriate penalties and sanctions.
307 2. A managing general agency or insurance agency that
308 employs or contracts with an insurance agent to sell or solicit
309 the sale of annuities to consumers must take reasonably
310 appropriate corrective action for a consumer harmed by a
311 violation of this section by the insurance agent.
312 (c) In addition to any other penalty authorized under
313 chapter 626, the department shall order an insurance agent to
314 pay restitution to a consumer who has been deprived of money by
315 the agent’s misappropriation, conversion, or unlawful
316 withholding of moneys belonging to the senior consumer in the
317 course of a transaction involving annuities. The amount of
318 restitution may not exceed the amount misappropriated,
319 converted, or unlawfully withheld. This paragraph does not limit
320 or restrict a person’s right to seek other remedies as provided
321 by law.
322 (d) Any applicable penalty under the Florida Insurance Code
323 for a violation of this section shall be reduced or eliminated
324 according to a schedule adopted by the office or the department,
325 as appropriate, if corrective action for the consumer was taken
326 promptly after a violation was discovered.
327 (e) A violation of this section does not create or imply a
328 private cause of action.
329 (8) PROHIBITED CHARGES.—An annuity contract issued to a
330 senior consumer age 65 or older may not contain a surrender or
331 deferred sales charge for a withdrawal of money from an annuity
332 exceeding 10 percent of the amount withdrawn. The charge shall
333 be reduced so that no surrender or deferred sales charge exists
334 after the end of the 10th policy year or 10 years after the date
335 of each premium payment if multiple premiums are paid, whichever
336 is later. This subsection does not apply to annuities purchased
337 by an accredited investor, as defined in Regulation D as adopted
338 by the United States Securities and Exchange Commission, or to
339 those annuities specified in paragraph (4)(b).
340 (9) RULES.—The department may adopt rules to administer
341 this section.
342 Section 2. Subsection (4) of section 626.99, Florida
343 Statutes, is amended to read:
344 626.99 Life insurance solicitation.—
345 (4) DISCLOSURE REQUIREMENTS.—
346 (a) The insurer shall provide to each prospective purchaser
347 a buyer’s guide and a policy summary prior to accepting the
348 applicant’s initial premium or premium deposit, unless the
349 policy for which application is made provides an unconditional
350 refund for a period of at least 14 days, or unless the policy
351 summary contains an offer of such an unconditional refund. In
352 these instances, the buyer’s guide and policy summary must be
353 delivered with the policy or before prior to delivery of the
354 policy.
355 (b) With respect to fixed and variable annuities, the
356 policy must provide an unconditional refund for a period of at
357 least 21 14 days. For fixed annuities, the buyer’s guide must
358 shall be in the form as provided by the National Association of
359 Insurance Commissioners (NAIC) Annuity Disclosure Model
360 Regulation, until such time as a buyer’s guide is developed by
361 the department, at which time the department guide must be used.
362 For variable annuities, a policy summary may be used, which may
363 be contained in a prospectus, until such time as a buyer’s guide
364 is developed by NAIC or the department, at which time one of
365 those guides must be used. Unconditional refund means If the
366 prospective owner of an annuity contract is 65 years of age or
367 older:
368 1. An unconditional refund of premiums paid for a fixed
369 annuity contract, including any contract fees or charges, must
370 be available for a period of 21 days; and
371 2. An unconditional refund for variable or market value
372 annuity contracts must be available for a period of 21 days. The
373 unconditional refund shall be equal to the cash surrender value
374 provided in the annuity contract, plus any fees or charges
375 deducted from the premiums or imposed under the contract, or a
376 refund of all premiums paid. This subparagraph does not apply if
377 the prospective owner is an accredited investor, as defined in
378 Regulation D as adopted by the United States Securities and
379 Exchange Commission.
380 (c) The insurer shall attach a cover page to any annuity
381 contract policy informing the purchaser of the unconditional
382 refund period prescribed in paragraph (b). The cover page must
383 also provide contact information for the issuing company and the
384 selling agent, and the department’s toll-free help line, and any
385 other information required by the department by rule. The cover
386 page must also contain the following disclosures in bold print
387 and at least 12-point type, if applicable:
388 1. “PLEASE BE AWARE THAT THE PURCHASE OF AN ANNUITY
389 CONTRACT IS A LONG-TERM COMMITMENT AND MAY RESTRICT ACCESS TO
390 YOUR FUNDS.”
391 2. “IT IS IMPORTANT THAT YOU UNDERSTAND HOW THE BONUS
392 FEATURE OF YOUR CONTRACT WORKS. PLEASE REFER TO YOUR POLICY FOR
393 FURTHER DETAILS.”
394 3. “INTEREST RATES MAY HAVE CERTAIN LIMITATIONS. PLEASE
395 REFER TO YOUR POLICY FOR FURTHER DETAILS.”
396 4. “A [PROSPECTUS AND POLICY SUMMARY] [BUYERS GUIDE] IS
397 REQUIRED TO BE GIVEN TO YOU.”
398
399 The cover page is part of the policy and is subject to review by
400 the office pursuant to s. 627.410.
401 (d) The insurer shall provide a buyer’s guide and a policy
402 summary to a any prospective purchaser upon request.
403 Section 3. This act shall take effect October 1, 2012.
