Annuity Fraud Bills Filed; Senate Version Summary-SB 1372

As a result of efforts by the “Safeguard Our Seniors” Task Force (“SOS Task Force”) created by Florida Chief Financial Officer Alex Sink, two similar bills related to the prevention of annuity sales fraud were filed in the Florida Legislature during February 2009.  While the bills are not identical, their principles are the same:

• Senate Bill 1372 Relating to Insurance by Senator Mike Bennett (R-Bradenton) expands the definition of “affiliated party” to include certain third-party marketers.  The bill includes family members of insurance agents in a prohibition related to the transaction of life insurance and expands grounds for discretionary refusal, suspension, or revocation of certain licenses. It also prohibits a family member of a life insurance agent from being a beneficiary of certain policies.  Effective Date:  July 1, 2009.
• House Bill 981 Relating to Annuity Contracts for Seniors by State Representative Keith Fitzgerald (D-Sarasota) revises consumer protection requirements relating to designation of beneficiaries of life insurance policies; provides additional ground for taking adverse action against the license or appointment of specified persons; expands the prohibition against the Florida Department of Financial Services’ issuing licenses to specified persons for specified activities; and revises the prohibition against life agents handling placement of coverage under  life insurance policies under specified circumstances.  Effective Date:  July 1, 2009.

After the number of complaints from Florida seniors about annuities fraud nearly quadrupled during the past three years, CFO Sink turned DFS attention toward creating financial protections for Florida’s growing senior population and tougher consequences for offenders.

According to CFO Sink, under the proposed legislation, the act of “twisting” an annuity to a senior consumer would be a third-degree felony, which would bring this violation in line with the penalty currently applied to a securities broker-dealer under Florida law.  “Twisting” is an insurance industry term for dishonest conduct in replacing insurance policies and traditional annuities by recommending the redemption of policies and using the proceeds to purchase a similar insurance policy or annuity with another company.

Other protections under the proposed legislation include:

• Limiting the surrender charge period for an annuity sold to a senior consumer to five years and the surrender charge to five percent;
• Extending the “free look” period for the purchase of an annuity by a senior consumer from 14 to 60 days;
• Authorizing the DFS to require an agent to make monetary restitution to a senior consumer they’ve harmed;
• Prohibiting the DFS from issuing another license to a former licensee who has had his or her license revoked as a result of the solicitation or sale of an insurance product to a senior consumer.
• Upon issuance of an annuity, requiring an insurer to provide a cover sheet attached to the policy informing the purchaser about the “free look” period and how to contact the insurer and the DFS if they have questions about the annuity.

A section-by-section review of SB 1372 is provided below for your review:

Section 1

Amends Section 624.310, F.S. pertaining to enforcement/disciplinary actions for violating the Florida Insurance Code.  The amendment would expand the definition of “affiliated party” under subsection (1)(a) to include certain third-party marketers. 

Section 2

Amends Section 626.025, F.S. pertaining to consumer protection laws applicable to insurers. The amendment would expand the prohibition against the designation of a life insurance agent as the beneficiary of a life insurance policy sold to an individual other than a family member under Section 626.798, F.S., to now also include the designation of the insurance agent’s family members.

Section 3

Amends Section 626.621, F.S. pertaining to applicable grounds under which the DFS may, in its discretion, deny, suspend, revoke or refuse the license or appointment of an agent, adjuster, customer representative, service representative, or managing general agent.

Section 4

Amends Section 626.641, F.S. to restrict the issuance of an individual’s license as an agent or customer representative for violations of this code.

Section 5

Amends Section 626.798, F.S. pertaining to the prohibition against life agents as beneficiaries.  Specifically, the amendment expands the prohibition against life agents as beneficiaries to include family members of such agents.

Section 6

Amends Section 626.9521, F.S. pertaining to prohibitions and penalties on unfair methods of competition and unfair, or deceptive practices.  Specifically, clarifies a “natural” person and provides that the act of “twisting” or “churning” is a third-degree felony.

Section 7

Amends Section 626.99, F.S. pertaining to the disclosure requirements regarding solicitation of life insurance. 

Section 8

Amends Section 627.4554, F.S. pertaining to annuity investments by seniors, and specifically authorizes the DFS to order monetary restitution to a senior harmed pursuant to this section.  It also limits a deferred sales charge.

 

A DFS press release regarding the legislation is reprinted below.

 

Should you have any questions or comments regarding this matter, please contact Colodny Fass.

 

CFO Sink Announces Legislation to Help Safeguard Florida Seniors

Bi-Partisan Legislation Sponsored by Senator Mike Bennett (R-Bradenton) and Representative Keith Fitzgerald (D- Sarasota)

TALLAHASSEE – In 2006, Bonnie Madden, 81 from Port Richey, purchased two annuities from insurance agent Randolph Kahl-Winter.  A year later, her agent engaged in a practice known as “twisting” when he falsely inflated Madden’s net worth and converted her annuities into one annuity policy with a different company in order to generate a $52,000 commission for himself.  The agent’s action would have cost Madden nearly $300,000 of her life savings if the Department of Financial Services had not intervened.

Chief Financial Officer Alex Sink said it is because of Madden, and others like her, that she has teamed up with key lawmakers to push for tougher penalties for unscrupulous agents who defraud senior investors and establish better disclosures and protections upfront for seniors who invest in these products. 

Sink said her department has heard from hundreds of seniors and their families who say they were convinced to liquidate annuities, CDs, stocks and savings accounts to fund new annuities only to discover these actions robbed them of their savings. 

“The number of complaints from Florida seniors about annuities has nearly quadrupled in the last three years,” said Sink, whose department has opened 474 investigations on financial fraud involving seniors, with approximately 70 percent of cases related to annuity and life insurance transactions. “Better financial protections for our growing population of senior residents and tougher consequences for those who defraud our seniors demand our immediate attention.”

Florida is currently home to more than 2.9 million Floridians over the age of 65. The state’s senior population is projected to grow by as much as 30 percent, and many of these seniors will look into investing in annuities. An annuity is an insurance contract that offers a guaranteed series of payments over a period of time. Seniors may consider purchasing an “immediate” annuity, where payments begin right away, or “deferred” annuities, which accumulate savings over a period of time before payments begin. 

Joining Sink at a press conference in Tallahassee to announce legislation was State Senator Mike Bennett (SB 1372) and State Representative Keith Fitzgerald.  Sink was also joined by Jack McRay from AARP and several members of the Safeguard our Seniors (SOS) Task Force.  Sink created the SOS Task Force last fall to examine and recommend solutions to better protect Florida seniors against financial fraud, with a specific focus on annuity fraud.  

“This legislation is so important as more seniors move to Florida and seek to invest their hard-earned savings,” said Senator Bennett.  “We will not tolerate any agent who steals from, misleads or lies to our state’s senior investors.”

“Annuities can be an effective investment tool for many Floridians wanting a steady stream of income for retirement,” Fitzgerald said.  “But agents must be held accountable for the financial harm they inflict when they steer our state’s seniors into inappropriate annuity products.”

Under the legislation, the act of “twisting” an annuity to a senior consumer would be a third degree felony, bringing this violation in line with the penalty currently applied to a securities broker-dealer under Florida law.   Other protections under the proposed legislation also:

• limit the surrender charge period for an annuity sold to a senior consumer to five years and the surrender charge to 5 percent;
• extend the “free look” period for the purchase of an annuity by a senior consumer from 14 to 60 days;
• authorize the Department to require an agent to make monetary restitution to a senior consumer they’ve harmed;
• prohibit the Department from issuing another license to a former licensee who has had his or her license revoked resulting from the solicitation or sale of an insurance product to a senior consumer;
• require an insurer to provide a cover sheet attached to the policy when an annuity is issued informing the purchaser about the free look period and about how to contact the insurer and the department if they have questions about the annuity.

The SOS Task Force includes representatives from the Department of Veterans’ Affairs, Insurance Consumer Advocate, Offices of Insurance Regulation and Financial Regulation, NAACP, Florida Bar, American Council of Life Insurers, insurance agents and securities broker-dealers. 

To learn more about the SOS Task Force or what to consider when purchasing annuities, visit www.FLSeniors.net. Senior Floridians who believe they may have been the victim of annuity fraud should call 1-877-My-FL-CFO or log on to www.MyFloridaCFO.com to file a complaint.

 

To unsubscribe from this newsletter, please send an e-mail to ccochran@cftlaw.com