Rule Development Workshop Report, February 2: Suitability and Disclosure in Annuity Contracts-Forms Required

On February 2, 2009, the Department of Financial Services (“DFS”), Division of Insurance Agents and Agency Services (“Division”) held a workshop on proposed Rule 69B-162.011 entitled “Suitability and Disclosure in Annuity Contracts-Forms Required.”  The proposed Rule implements new requirements of 627.4554, F.S. 

DFS Senior Attorney Tom Valentine presided over the hearing.

The Division has created two forms to implement the new statutory requirements: 

• Disclosure and Comparison of Annuity Contracts
• Annuity Suitability Questionnaire

Division officials explained that these forms are being created to adequately protect Florida’s seniors from fraudulent annuity sales.  They also noted that the “Safeguard Our Seniors” Task Force has been working on annuity issues, and that the work of this Task Force is expected to lead to proposed legislation for the 2009 Regular Legislative Session.  The forms are intended to be balanced and fair for the seniors, industry and regulators. 

Industry representatives provided comments and concerns regarding the forms. The comments included the following points and questions:

• Existing forms should be modified to include all the content of the new forms, and must be of the type and size prescribed by the statute.
• Regarding the Suitability Questionnaire, there is language relating to “anticipated or unforeseen” data.  Insurers feel that compliance with this language will be difficult.  Division officials noted that the questions will help establish and affirm the need for liquid reserves.
• The forms appear to assume the owner is always the annuitant, which is not always the case.  Division officials noted this and will consider changing that provision.
• The forms have limited writing space.  Industry representatives suggested multiple choice options as opposed to a narrative response.  Division officials noted that they are looking to obtain a record of consumer input and they do not want agents simply checking boxes that are otherwise meant for the consumer to complete.  The narrative questions also raise issues regarding the suitability and sufficiency of consumers’ answers
• Duplicate forms.  Applicants will now get four forms instead of two, with the option to receive a comparison form.  Division officials noted that both the Florida Office of Insurance Regulation and DFS have forms that are required by law.  Therefore, legislative action may be necessary to consolidate the forms.
• Can substantially similar forms be used regarding the Disclosure and Comparison of Annuity Contracts Form?  Division officials did not preclude the use of substantially similar forms, but noted that the provisions in the adopted forms should be included.
• Are attachments acceptable with the Suitability Questionnaire Form if the answers cannot be addressed on the pages provided?  Division officials stated that attachments were acceptable; however, industry representatives suggested adding clarifying language to the Form so that potentially long lists of answers do not arise.  Because of concern about potential lawsuits, industry representatives suggested not allowing attachments to accompany the forms.
• What if certain information required on the Disclosure Form is unknown?  DFS officials noted that there should be evidence of why the answer is not available, and that the insurer should exercise diligence in finding the information.
• It was requested that “generic contract type” be further defined on the Disclosure Form, and that the Questionnaire be amended to include the tax status and tax bracket. 

The Division officials noted that there are statutory requirements causing many of the insurer concerns about the forms.  Officials are willing to work with the industry representatives to achieve fair and balanced forms. 

Following public testimony, Mr. Valentine concluded the meeting and noted that the record will be remain open for seven calendar days to receive additional written comments. 

The complete text of the proposed Rule and meeting notice can be viewed by clicking here, and a DFS press release detailing the components of the new law is reprinted below.  Copies of the two forms are attached for your review.

 

Should you have any questions or need additional information, please feel free to contact Colodny Fass.

 

CFO Sink warns annuity fraudsters: tougher laws now on the books

January 1, 2009

Florida Chief Financial Officer Alex Sink’s 2008 legislative push to target agents using predatory annuity practices against seniors now results in tougher penalties for fraudsters in Florida. Effective January 1, 2009, SB 2082 strengthens the fines against agents who target Floridians using fraudulent annuities sales practices. The legislation also makes it a third degree felony to submit a fraudulent signature, prohibits agents from using fake designations to falsely imply financial expertise, and clarifies and strengthens suitability requirements that agents must meet when selling an annuity to a consumer.

“This legislation represents a good first step,” CFO Sink said. “We were able to increase protections for seniors and punish agents who commit financially devastating crimes. That said, I will continue to push for it to be a felony to intentionally deceive a senior into an inappropriate annuity product. And I’m not going to rest until we’re able to put unscrupulous agents that prey on our seniors behind bars.”

Highlights of amendments to F.S. 627.4554 – Annuity Investments by Seniors (effective 1/01/09):

• Agents licensed in Florida must take a minimum of three hours of continuing education on the subject of suitability in annuity and life insurance transactions.
• Any person who willfully submits fraudulent signatures on an application or policy-related document commits a felony of the third degree.
• Any agent who misuses a designation to imply they have specialized training or knowledge or misrepresents their actual qualifications, commits a violation of the unfair trade practices.
• Significantly expands the type of information the agent is required to collect from the senior consumer to determine suitability when recommending an annuity.
• Requires the agent to complete a detailed comparison form comparing the benefits of the senior consumer’s existing annuity to the one being recommended by the agent as a replacement.
• Increases the period in which the consumer can obtain an unconditional refund if the consumer decides not to accept the life or annuity policy from 10 to 14 days from the date the policy is received.
• Imposes fine maximums of $30,000 for each willful violation of twisting, churning and submission of fraudulent signatures.

Every day, hundreds of Floridians fall victim to financial fraud. Many of these victims are trusting seniors who were misled into making risky or inappropriate financial investments, including annuities and reverse mortgages, by unscrupulous agents and scam artists. In response, Chief Financial Officer Alex Sink has created the Safeguard our Seniors (SOS) Task Force to develop solutions to better protect Florida seniors from falling victim to financial fraud. For more information visit www.flseniors.net.

Floridians who believe they may have been victims of annuity fraud should call 1-877-MY-FL-CFO (1-877-693-5236) or log on to www.MyFloridaCFO.com to file a complaint.

 

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