CFO Sink Works With Florida Senate on Legislation to Increase Annuity Fraud Penalties

Florida Chief Financial Officer (“CFO”) Alex Sink today congratulated members of the Florida Senate’s Banking and Insurance Committee for unanimously passing legislation (PCS/SB 2082 Relating to Annuity Products) that comprehensively addresses the issue of annuity fraud, including strengthening penalties against agents who target Floridians, especially seniors and the mentally-disabled, using predatory annuity and life insurance practices.

PCS/SB 2082 will now proceed to the Senate General Government Appropriations Committee before it heads to the Senate Floor. Companion House Bill 1003, sponsored by State Rep. Clay Ford (R-Pensacola), has been referred to the House Jobs and Entrepreneurship Council.

A copy of the announcement from CFO Sink is reprinted below.

 

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CFO Sink Works With Florida Senate on Legislation to Increase Penalties on Annuity Fraud

Legislation targets agents using predatory annuity and life insurance practices against seniors

TALLAHASSEE– Florida Chief Financial Officer Alex Sink today congratulated members of the Florida Senate’s Banking and Insurance Committee for unanimously passing legislation (PCS/SB 2082) that comprehensively addresses the issue of annuity fraud, including strengthening penalties against agents who target Floridians, especially seniors and the mentally-disabled, using predatory annuity and life insurance practices. CFO Sink has been working with Senate President Ken Pruitt (R- Port St. Lucie) and State Senator Michael “Mike” Bennett (R-Bradenton) to better combat annuity fraud, which is investigated and administratively prosecuted by CFO Sink’s Department of Financial Services (DFS).

“We need to deter and punish those who commit financially devastating crimes on Florida’s seniors,” said CFO Alex Sink. “I applaud Senate President Pruitt and Senator Bennett for their leadership and for working with me to reduce this widespread and growing problem.”

Florida consumers, and especially seniors, are commonly targeted through the use of deceptive life insurance and annuity sales practices known as “twisting” and “churning.” Twisting occurs when an insurance agent knowingly makes misleading representations or material omissions regarding insurance policies to induce a consumer to take out an insurance policy with another insurer. Churning is similar, but involves the surrender of a current policy to buy a policy from the same insurance company.

Specifically, the legislation makes twisting and churning a third-degree felony, and in instances where a pattern or practice exists of victimizing consumers age 65 and older or who suffer from a mental incapacity, penalties under the proposed legislation are increased to a second-degree felony. The bill also prohibits insurance agents from submitting applications or policy-related documents bearing fraudulent signatures to insurers, making such a violation a third-degree felony.

Consider the story of Virginia, a 75-year-old Boynton Beach consumer who lived alone and suffered from undiagnosed dementia. In 2005, an insurance agent knocked on Virginia’s door with the goal of selling her an annuity. By the time the agent left Virginia’s house, he had caused her to liquidate six fully-liquid in-force annuities that Virginia could have accessed in full without penalty at any time had she or her family needed those funds to pay for her living or medical expenses. Because of this unscrupulous agent’s actions, Virginia used her already-liquid funds to purchase new annuities carrying 15 years of surrender charges as high as 19 percent. DFS prosecuted the agent for his actions against Virginia and other consumers. The agent lost his license and was ordered to pay $40,000 in administrative penalties.

“This important legislation will go a long way to protect our Greatest Generation,” said Senate President Pruitt. “I hope this bill sends a shudder down the spines of those who try to deceive and confuse our seniors out of their hard-earned savings.”

The legislation also strengthens suitability criteria and requires increased disclosure from the agent selling the annuities or life insurance policies. The new suitability criteria will require agents to establish an objectively reasonable basis that the policies they recommend are suitable for the consumer, and to document their suitability determination in writing prior to making any sale. The agent will also be required to disclose important information about the new product, including a comparison of the consumer’s current and proposed new policy, and to document for the consumer any surrender charges he or she will suffer as a result of the proposed transaction.

“When I see citizens being taken advantage of by unscrupulous agents, I think it’s time we in the Legislature step up to ensure that the citizens of Florida are protected,” said Sen. Bennett.

During the past several years, DFS has witnessed a growing number of cases where Florida seniors have been persuaded to purchase a life insurance or annuity product that is harmful or financially devastating. DFS opened 351 investigations related to annuity transactions during the 2006-2007 fiscal year, a 41 percent increase over the previous year. Since July 1, 2007, DFS has already opened more than 260 annuity-related investigations, which trends to a 58 percent cumulative increase since the 2005-2006 fiscal year.

PCS/SB 2082 will now proceed to the Senate General Government Appropriations Committee before it heads to the Senate Floor. Companion House Bill 1003, sponsored by State Rep. Clay Ford (R-Pensacola), has been referred to the House Jobs and Entrepreneurship Council.

 

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