2013 Legislature                            CS for CS for SB 166
    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; providing exemptions;
    7         revising the duties of insurers and agents; providing
    8         that recommendations must be based on consumer
    9         suitability information; revising the information
   10         relating to annuities that must be provided by the
   11         insurer or its agent to the consumer; revising the
   12         requirements for monitoring contractors that are
   13         providing certain functions for the insurer relating
   14         to the insurer’s system for supervising
   15         recommendations; revising provisions relating to the
   16         relationship between this act and the federal
   17         Financial Industry Regulatory Authority; prohibiting
   18         specified charges for annuities issued to persons 65
   19         years of age or older; authorizing the Department of
   20         Financial Services and the Financial Services
   21         Commission to adopt rules; amending s. 626.99, F.S.;
   22         increasing the period of time that an unconditional
   23         refund must remain available with respect to certain
   24         annuity contracts; making such unconditional refunds
   25         available to all prospective annuity contract buyers
   26         without regard to the buyer’s age; revising
   27         requirements for cover pages of annuity contracts;
   28         providing an effective date.
   30  Be It Enacted by the Legislature of the State of Florida:
   32         Section 1. Section 627.4554, Florida Statutes, is amended
   33  to read:
   34         (Substantial rewording of section. See
   35         s. 627.4554, F.S., for present text.)
   36         627.4554 Annuity investments.—
   37         (1) PURPOSE.—The purpose of this section is to require
   38  insurers to set forth standards and procedures for making
   39  recommendations to consumers which result in transactions
   40  involving annuity products, and to establish a system for
   41  supervising such recommendations in order to ensure that the
   42  insurance needs and financial objectives of consumers are
   43  appropriately addressed at the time of the transaction.
   44         (2) SCOPE.—This section applies to any recommendation made
   45  to a consumer to purchase, exchange, or replace an annuity by an
   46  insurer or its agent, and which results in the purchase,
   47  exchange, or replacement recommended.
   48         (3) DEFINITIONS.—As used in this section, the term:
   49         (a) “Agent” has the same meaning as provided in s. 626.015.
   50         (b) “Annuity” means an insurance product under state law
   51  which is individually solicited, whether classified as an
   52  individual or group annuity.
   53         (c) “FINRA” means the Financial Industry Regulatory
   54  Authority or a succeeding agency.
   55         (d) “Insurer” has the same meaning as provided in s.
   56  624.03.
   57         (e) “Recommendation” means advice provided by an insurer or
   58  its agent to a consumer which would result in the purchase,
   59  exchange, or replacement of an annuity in accordance with that
   60  advice.
   61         (f) “Replacement” means a transaction in which a new policy
   62  or contract is to be purchased and it is known or should be
   63  known to the proposing insurer or its agent that by reason of
   64  such transaction an existing policy or contract will be:
   65         1. Lapsed, forfeited, surrendered or partially surrendered,
   66  assigned to the replacing insurer, or otherwise terminated;
   67         2. Converted to reduced paid-up insurance, continued as
   68  extended term insurance, or otherwise reduced in value due to
   69  the use of nonforfeiture benefits or other policy values;
   70         3. Amended so as to effect a reduction in benefits or the
   71  term for which coverage would otherwise remain in force or for
   72  which benefits would be paid;
   73         4. Reissued with a reduction in cash value; or
   74         5. Used in a financed purchase.
   75         (g) “Suitability information” means information related to
   76  the consumer which is reasonably appropriate to determine the
   77  suitability of a recommendation made to the consumer, including
   78  the following:
   79         1. Age;
   80         2. Annual income;
   81         3. Financial situation and needs, including the financial
   82  resources used for funding the annuity;
   83         4. Financial experience;
   84         5. Financial objectives;
   85         6. Intended use of the annuity;
   86         7. Financial time horizon;
   87         8. Existing assets, including investment and life insurance
   88  holdings;
   89         9. Liquidity needs;
   90         10. Liquid net worth;
   91         11. Risk tolerance; and
   92         12. Tax status.
   93         (4) EXEMPTIONS.—This section does not apply to transactions
   94  involving:
   95         (a) Direct-response solicitations where there is no
   96  recommendation based on information collected from the consumer
   97  pursuant to this section;
   98         (b) Contracts used to fund:
   99         1. An employee pension or welfare benefit plan that is
  100  covered by the federal Employee Retirement and Income Security
  101  Act;
  102         2. A plan described by s. 401(a), s. 401(k), s. 403(b), s.
  103  408(k), or s. 408(p) of the Internal Revenue Code, if
  104  established or maintained by an employer;
  105         3. A government or church plan defined in s. 414 of the
  106  Internal Revenue Code, a government or church welfare benefit
  107  plan, or a deferred compensation plan of a state or local
  108  government or tax-exempt organization under s. 457 of the
  109  Internal Revenue Code;
  110         4. A nonqualified deferred compensation arrangement
  111  established or maintained by an employer or plan sponsor;
  112         5. Settlements or assumptions of liabilities associated
  113  with personal injury litigation or a dispute or claim-resolution
  114  process; or
  115         6. Formal prepaid funeral contracts.
  117         (a) When recommending the purchase or exchange of an
  118  annuity to a consumer which results in an insurance transaction
  119  or series of insurance transactions, the agent, or the insurer
  120  where no agent is involved, must have reasonable grounds for
  121  believing that the recommendation is suitable for the consumer,
  122  based on the consumer’s suitability information, and that there
  123  is a reasonable basis to believe all of the following:
  124         1. The consumer has been reasonably informed of various
  125  features of the annuity, such as the potential surrender period
  126  and surrender charge; potential tax penalty if the consumer
  127  sells, exchanges, surrenders, or annuitizes the annuity;
  128  mortality and expense fees; investment advisory fees; potential
  129  charges for and features of riders; limitations on interest
  130  returns; insurance and investment components; and market risk.
  131         2. The consumer would benefit from certain features of the
  132  annuity, such as tax-deferred growth, annuitization, or the
  133  death or living benefit.
  134         3. The particular annuity as a whole, the underlying
  135  subaccounts to which funds are allocated at the time of purchase
  136  or exchange of the annuity, and riders and similar product
  137  enhancements, if any, are suitable; and, in the case of an
  138  exchange or replacement, the transaction as a whole is suitable
  139  for the particular consumer based on his or her suitability
  140  information.
  141         4. In the case of an exchange or replacement of an annuity,
  142  the exchange or replacement is suitable after considering
  143  whether the consumer:
  144         a. Will incur a surrender charge; be subject to the
  145  commencement of a new surrender period; lose existing benefits,
  146  such as death, living, or other contractual benefits; or be
  147  subject to increased fees, investment advisory fees, or charges
  148  for riders and similar product enhancements;
  149         b. Would benefit from product enhancements and
  150  improvements; and
  151         c. Has had another annuity exchange or replacement,
  152  including an exchange or replacement within the preceding 36
  153  months.
  154         (b) Before executing a purchase, exchange, or replacement
  155  of an annuity resulting from a recommendation, an insurer or its
  156  agent must make reasonable efforts to obtain the consumer’s
  157  suitability information. The information shall be collected on
  158  form DFS-H1-1980, which is hereby incorporated by reference, and
  159  completed and signed by the applicant and agent. Questions
  160  requesting this information must be presented in at least 12
  161  point type and be sufficiently clear so as to be readily
  162  understandable by both the agent and the consumer. A true and
  163  correct executed copy of the form must be provided by the agent
  164  to the insurer, or to the person or entity that has contracted
  165  with the insurer to perform this function as authorized by this
  166  section, within 10 days after execution of the form, and shall
  167  be provided to the consumer no later than the date of delivery
  168  of the contract or contracts.
  169         (c) Except as provided under paragraph (d), an insurer may
  170  not issue an annuity recommended to a consumer unless there is a
  171  reasonable basis to believe the annuity is suitable based on the
  172  consumer’s suitability information.
  173         (d) An insurer’s issuance of an annuity must be reasonable
  174  based on all the circumstances actually known to the insurer at
  175  the time the annuity is issued. However, an insurer or its agent
  176  does not have an obligation to a consumer related to an annuity
  177  transaction under paragraph (a) or paragraph (c) if:
  178         1. A recommendation has not been made;
  179         2. A recommendation was made and is later found to have
  180  been based on materially inaccurate information provided by the
  181  consumer;
  182         3. A consumer refuses to provide relevant suitability
  183  information and the annuity transaction is not recommended; or
  184         4. A consumer decides to enter into an annuity transaction
  185  that is not based on a recommendation of an insurer or its
  186  agent.
  187         (e) At the time of sale, the agent or the agent’s
  188  representative must:
  189         1. Make a record of any recommendation made to the consumer
  190  pursuant to paragraph (a);
  191         2. Obtain the consumer’s signed statement documenting his
  192  or her refusal to provide suitability information, if
  193  applicable; and
  194         3. Obtain the consumer’s signed statement acknowledging
  195  that an annuity transaction is not recommended if he or she
  196  decides to enter into an annuity transaction that is not based
  197  on the insurer’s or its agent’s recommendation, if applicable.
  198         (f) Before executing a replacement or exchange of an
  199  annuity contract resulting from a recommendation, the agent must
  200  provide on form DFS-H1-1981, which is hereby incorporated by
  201  reference, information that compares the differences between the
  202  existing annuity contract and the annuity contract being
  203  recommended in order to determine the suitability of the
  204  recommendation and its benefit to the consumer. A true and
  205  correct executed copy of this form must be provided by the agent
  206  to the insurer, or to the person or entity that has contracted
  207  with the insurer to perform this function as authorized by this
  208  section, within 10 days after execution of the form, and must be
  209  provided to the consumer no later than the date of delivery of
  210  the contract or contracts.
  211         (g) An insurer shall establish a supervision system that is
  212  reasonably designed to achieve the insurer’s and its agent’s
  213  compliance with this section.
  214         1. Such system must include, but is not limited to:
  215         a. Maintaining reasonable procedures to inform its agents
  216  of the requirements of this section and incorporating those
  217  requirements into relevant agent training manuals;
  218         b. Establishing standards for agent product training;
  219         c. Providing product-specific training and training
  220  materials that explain all material features of its annuity
  221  products to its agents;
  222         d. Maintaining procedures for the review of each
  223  recommendation before issuance of an annuity which are designed
  224  to ensure that there is a reasonable basis for determining that
  225  a recommendation is suitable. Such review procedures may use a
  226  screening system for identifying selected transactions for
  227  additional review and may be accomplished electronically or
  228  through other means, including physical review. Such electronic
  229  or other system may be designed to require additional review
  230  only of those transactions identified for additional review
  231  using established selection criteria;
  232         e. Maintaining reasonable procedures to detect
  233  recommendations that are not suitable, such as confirmation of
  234  consumer suitability information, systematic customer surveys,
  235  consumer interviews, confirmation letters, and internal
  236  monitoring programs. This sub-subparagraph does not prevent an
  237  insurer from using sampling procedures or from confirming
  238  suitability information after the issuance or delivery of the
  239  annuity; and
  240         f. Annually providing a report to senior managers,
  241  including the senior manager who is responsible for audit
  242  functions, which details a review, along with appropriate
  243  testing, which is reasonably designed to determine the
  244  effectiveness of the supervision system, the exceptions found,
  245  and corrective action taken or recommended, if any.
  246         2. An insurer is not required to include in its supervision
  247  system agent recommendations to consumers of products other than
  248  the annuities offered by the insurer.
  249         3. An insurer may contract for performance of a function
  250  required under subparagraph 1.
  251         a. If an insurer contracts for the performance of a
  252  function, the insurer must include the supervision of
  253  contractual performance as part of those procedures listed in
  254  subparagraph 1. These include, but are not limited to:
  255         (I) Monitoring and, as appropriate, conducting audits to
  256  ensure that the contracted function is properly performed; and
  257         (II) Annually obtaining a certification from a senior
  258  manager who has responsibility for the contracted function that
  259  the manager has a reasonable basis for representing that the
  260  function is being properly performed.
  261         b. An insurer is responsible for taking appropriate
  262  corrective action and may be subject to sanctions and penalties
  263  pursuant to subsection (7) regardless of whether the insurer
  264  contracts for performance of a function and regardless of the
  265  insurer’s compliance with sub-subparagraph a.
  266         (h) An agent may not dissuade, or attempt to dissuade, a
  267  consumer from:
  268         1. Truthfully responding to an insurer’s request for
  269  confirmation of suitability information;
  270         2. Filing a complaint; or
  271         3. Cooperating with the investigation of a complaint.
  272         (i) Sales made in compliance with FINRA requirements
  273  pertaining to the suitability and supervision of annuity
  274  transactions satisfy the requirements of this section. This
  275  applies to FINRA broker-dealer sales of variable annuities and
  276  fixed annuities if the suitability and supervision is similar to
  277  those applied to variable annuity sales. However, this paragraph
  278  does not limit the ability of the office or the department to
  279  enforce, including investigate, the provisions of this section.
  280  For this paragraph to apply, an insurer must:
  281         1. Monitor the FINRA member broker-dealer using information
  282  collected in the normal course of an insurer’s business; and
  283         2. Provide to the FINRA member broker-dealer information
  284  and reports that are reasonably appropriate to assist the FINRA
  285  member broker-dealer in maintaining its supervision system.
  286         (6) RECORDKEEPING.—
  287         (a) Insurers and agents must maintain or be able to make
  288  available to the office or department records of the information
  289  collected from the consumer and other information used in making
  290  the recommendations that were the basis for insurance
  291  transactions for 5 years after the insurance transaction is
  292  completed by the insurer. An insurer may maintain the
  293  documentation on behalf of its agent.
  294         (b) Records required to be maintained under this subsection
  295  may be maintained in paper, photographic, microprocess,
  296  magnetic, mechanical, or electronic media, or by any process
  297  that accurately reproduces the actual document.
  299         (a) An insurer is responsible for compliance with this
  300  section. If a violation occurs because of the action or inaction
  301  of the insurer or its agent which results in harm to a consumer,
  302  the office may order the insurer to take reasonably appropriate
  303  corrective action for the consumer and may impose appropriate
  304  penalties and sanctions.
  305         (b) The department may order:
  306         1. An insurance agent to take reasonably appropriate
  307  corrective action for a consumer harmed by a violation of this
  308  section by the insurance agent, including monetary restitution
  309  of penalties or fees incurred by the consumer, and impose
  310  appropriate penalties and sanctions.
  311         2. A managing general agency or insurance agency that
  312  employs or contracts with an insurance agent to sell or solicit
  313  the sale of annuities to consumers to take reasonably
  314  appropriate corrective action for a consumer harmed by a
  315  violation of this section by the insurance agent.
  316         (c) In addition to any other penalty authorized under
  317  chapter 626, the department shall order an insurance agent to
  318  pay restitution to a consumer who has been deprived of money by
  319  the agent’s misappropriation, conversion, or unlawful
  320  withholding of moneys belonging to the consumer in the course of
  321  a transaction involving annuities. The amount of restitution
  322  required to be paid may not exceed the amount misappropriated,
  323  converted, or unlawfully withheld. This paragraph does not limit
  324  or restrict a person’s right to seek other remedies as provided
  325  by law.
  326         (d) Any applicable penalty under the Florida Insurance Code
  327  for a violation of this section shall be reduced or eliminated
  328  according to a schedule adopted by the office or the department,
  329  as appropriate, if corrective action for the consumer was taken
  330  promptly after a violation was discovered.
  331         (e) A violation of this section does not create or imply a
  332  private cause of action.
  333         (8) PROHIBITED CHARGES.—An annuity contract issued to a
  334  senior consumer age 65 or older may not contain a surrender or
  335  deferred sales charge for a withdrawal of money from an annuity
  336  exceeding 10 percent of the amount withdrawn. The charge shall
  337  be reduced so that no surrender or deferred sales charge exists
  338  after the end of the 10th policy year or 10 years after the date
  339  of each premium payment if multiple premiums are paid, whichever
  340  is later. This subsection does not apply to annuities purchased
  341  by an accredited investor, as defined in Regulation D as adopted
  342  by the United States Securities and Exchange Commission, or to
  343  those annuities specified in paragraph (4)(b).
  344         (9) RULES.—The department and the commission may adopt
  345  rules to administer this section.
  346         Section 2. Subsection (4) of section 626.99, Florida
  347  Statutes, is amended to read:
  348         626.99 Life insurance solicitation.—
  350         (a) The insurer shall provide to each prospective purchaser
  351  a buyer’s guide and a policy summary prior to accepting the
  352  applicant’s initial premium or premium deposit, unless the
  353  policy for which application is made provides an unconditional
  354  refund for a period of at least 14 days, or unless the policy
  355  summary contains an offer of such an unconditional refund. In
  356  these instances, the buyer’s guide and policy summary must be
  357  delivered with the policy or before prior to delivery of the
  358  policy.
  359         (b) With respect to fixed and variable annuities, the
  360  policy must provide an unconditional refund for a period of at
  361  least 21 14 days. For fixed annuities, the buyer’s guide must
  362  shall be in the form as provided by the National Association of
  363  Insurance Commissioners (NAIC) Annuity Disclosure Model
  364  Regulation, until such time as a buyer’s guide is developed by
  365  the department, at which time the department guide must be used.
  366  For variable annuities, a policy summary may be used, which may
  367  be contained in a prospectus, until such time as a buyer’s guide
  368  is developed by NAIC or the department, at which time one of
  369  those guides must be used. Unconditional refund means If the
  370  prospective owner of an annuity contract is 65 years of age or
  371  older:
  372         1. An unconditional refund of premiums paid for a fixed
  373  annuity contract, including any contract fees or charges, must
  374  be available for a period of 21 days; and
  375         2. An unconditional refund for variable or market value
  376  annuity contracts must be available for a period of 21 days. The
  377  unconditional refund shall be equal to the cash surrender value
  378  provided in the annuity contract, plus any fees or charges
  379  deducted from the premiums or imposed under the contract, or a
  380  refund of all premiums paid. This subparagraph does not apply if
  381  the prospective owner is an accredited investor, as defined in
  382  Regulation D as adopted by the United States Securities and
  383  Exchange Commission.
  384         (c) The insurer shall attach a cover page to any annuity
  385  contract policy informing the purchaser of the unconditional
  386  refund period prescribed in paragraph (b). The cover page must
  387  also provide contact information for the issuing company and the
  388  selling agent, and the department’s toll-free help line, and any
  389  other information required by the department by rule. The cover
  390  page must also contain the following disclosures in bold print
  391  and at least 12-point type, if applicable:
  394  YOUR MONEY.”
  401  CONTRACT.”
  405  The cover page is part of the policy and is subject to review by
  406  the office pursuant to s. 627.410.
  407         (d) The insurer shall provide a buyer’s guide and a policy
  408  summary to a any prospective purchaser upon request.
  409         Section 3. This act shall take effect October 1, 2013.