Law & Ethics Update

As you have been made aware, complete chapters of the Florida Administrative Code and Florida Administrative Register are far too lengthy to incorporate into a course. This does not make you any less accountable to the entirety of the chapters dedicated to your conduct in and the sale of insurance by way of advertising.

Life insurance and annuity contracts require ads to be clear, truthful and provide adequate disclosure of the benefits, limitations and exclusions of policies sold as life insurance and annuity contracts. This is accomplished by the establishment of guidelines and standards of permissible and impermissible conduct in the advertising of life insurance and annuity contracts to assure product descriptions are presented in a manner that prevents unfair, deceptive and misleading advertising and is conducive to accurate presentation and description of life insurance and annuity contracts to the segment of the insurance buying public through the advertising media and material used by insurance agents and companies.

In variable contracts where disclosure requirements are established pursuant to federal regulation, these rules are to be interpreted to minimize or eliminate conflict with Federal Regulations of the SEC and FINRA.  [Chapter 69B-150]


Exceptions, Reductions, and Limitations 


· An ad that is an invitation to contract must disclose those exceptions, reductions, and limitations affecting the basic provisions of the policy.

· An ad subject to the requirements of the preceding paragraph must disclose the existence of a waiting, elimination, probationary, or similar time period between the effective date of the policy and the effective date of coverage under the policy, or the existence of a time period between the date a loss occurs and the date benefits begin to accrue for a loss in a manner as prominent as the benefit amount or benefit time period advertised.


An ad cannot use “only,” “just,” “merely,” “minimum,” or similar words or phrases to describe the applicability of any exceptions, reductions, or limitations, such as: “This policy is subject to the following minimum exceptions and reductions.”  [Chapter 69B-150.006(3)(a-c)]




Record Keeping


Reporting and Accounting for Funds


Not unlike any documents created, developed or maintained within an office, a licensee must keep and make available to the department books, accounts, and records to enable the department to determine whether the licensee is complying with advertising provisions. Every licensee must preserve books, accounts, and records pertaining to a premium payment for at least three years after payment; provided, however, the preservation of records by computer, photocopies, or other records must constitute compliance with this requirement. All other records are to be maintained in accordance with the Insurance Code. The 3-year requirement does not apply to insurance binders when no policy is ultimately issued and no premium is collected. [Source: §626.561(2)]



Annuity Investments by Seniors: Purpose; Construction 

The purpose of this section is to require insurers to set forth standards and procedures for making recommendations to consumers which result in transactions involving annuity products, and to establish a system for supervising such recommendations in order to ensure that the insurance needs and financial objectives of consumers are appropriately addressed at the time of the transaction. [Source: §627.4554(1)]



Any recommendation made to a consumer to purchase, exchange, or replace an annuity by an insurer or its agent, and which results in the purchase, exchange, or replacement recommended.
[Source: §627.4554(2)]


Duties of Insurers and Insurance Agents


In recommending the purchase or exchange of an annuity to a consumer, that results in another insurance transaction or series of insurance transactions, an insurance agent or an insurer, must have an objectively reasonable basis for believing the recommendation is suitable for the consumer based on the facts disclosed by the consumer as to his or her investments and other insurance products and as to his or her financial situation and needs.


Before executing a purchase or exchange of an annuity resulting from a recommendation to a consumer, an insurance agent or insurer must make reasonable efforts to obtain consumers suitability information. This information must be collected on a form of the department and completed and signed by the applicant and agent. Questions requesting this information must be presented in at least 12-point type and be sufficiently clear  and understandable by the agent and the consumer. A true and correct executed copy of the form must be provided by the agent to the insurer within ten days after execution of the form, and be provided to the consumer no later than the date of delivery of the contract(s).


An insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity is suitable based on the consumer’s suitability information. An insurer’s issuance of an annuity must be reasonable based on all the circumstances actually known to the insurer at the time the annuity is issued. However, an insurer or its agent does not have an obligation to a consumer related to an annuity transaction under if:


· A recommendation has not been made;

· A recommendation was made and is later found to have been based on materially inaccurate information provided by the consumer;

· A consumer refuses to provide relevant suitability information and the annuity transaction is not recommended; or

· A consumer decides to enter into an annuity transaction that is not based on a recommendation of an insurer or its agent.


At the time of sale, the agent or the agent’s representative must:


· Make a record of any recommendation made

· Obtain the consumer’s signed statement documenting his or her refusal to provide suitability information

· Obtain the consumer’s signed statement acknowledging that an annuity transaction is not recommended if he or she decides to enter into an annuity transaction that is not based on the insurer’s or its agent’s recommendation, if applicable.


Before executing a replacement or exchange of an annuity contract resulting from a recommendation, the agent must provide information that compares the differences between the existing annuity contract and the annuity contract being recommended in order to determine the suitability of the recommendation and its benefit to the consumer. A true and correct executed copy of this form must be provided by the agent to the insurer within 10 days after execution of the form, and must be provided to the consumer no later than the date of delivery of the contract or contracts.


An insurer must ensure that a system to supervise recommendations, which is reasonably designed to achieve suitability compliance, is established and maintained by complying with these directives :


· Maintaining written procedures.

· Establish agent training including product specific training

· Maintaining procedures for the review of each recommendation before issuance of an annuity

· Annually providing a report to senior managers conducting reviews of its records reasonably designed to assist in detecting and preventing



An agent may not dissuade, or attempt to dissuade, a consumer from:

· Truthfully responding to an insurer’s request for confirmation of suitability information

· Filing a complaint; or

· Cooperating with the investigation of a complaint.


Sales made in compliance with FINRA requirements pertaining to the suitability and supervision of annuity transactions satisfy the requirements of this section. This applies to FINRA broker-dealer sales of variable annuities and fixed annuities if the suitability and supervision is similar to those applied to variable annuity sales. However, this paragraph does not limit the ability of the office or the department to enforce, including investigate, the provisions of this section. For this paragraph to apply, an insurer must:


· Monitor the FINRA member broker-dealer using information collected in the normal course of an insurer’s business; and

· Provide to the FINRA member broker-dealer information and reports that are reasonably appropriate to assist the FINRA member broker-dealer in maintaining its supervision system.


[Source: §627.4554(5)]





Except as otherwise provided, an agent or an insurer has no obligation to a  consumer related to any recommendation if the consumer:


· An employee pension or welfare benefit plan that is covered by the federal Employee Retirement and Income Security Act;

· A plan described by s. 401(a), s. 401(k), s. 403(b), s. 408(k), or s. 408(p) of the Internal Revenue Code, if established or maintained by an employer;

· A government or church plan defined in s. 414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under s. 457 of the Internal Revenue Code;

· A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

· Settlements or assumptions of liabilities associated with personal injury litigation or a dispute or claim-resolution process; or

· Formal prepaid funeral contracts




Recordkeeping §627.4554(6)


Insurers and agents must maintain or be able to make available to the office or department records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for 5 years after the insurance transaction is completed by the insurer. An insurer may maintain the documentation on behalf of its agent.


Records required to be maintained may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.



Compliance Mitigation of Responsibility


An insurer is responsible for compliance with this section. If a violation occurs because of the action or inaction of the insurer or its agent which results in harm to a consumer, the office may order the insurer to take reasonably appropriate corrective action for the consumer and may impose appropriate penalties and sanctions.

The department may order:


· An insurance agent to take reasonably appropriate corrective action for a consumer harmed by a violation by the insurance agent, including monetary restitution of penalties or fees incurred by the consumer, and impose appropriate penalties and sanctions.


· A managing general agency or insurance agency that employs or contracts with an insurance agent to sell or solicit the sale of annuities to consumers to take reasonably appropriate corrective action for a consumer harmed by a violation of this section by the insurance agent.


The department can, in addition to any other penalty authorized, order an insurance agent to pay restitution to any senior consumer who has been deprived of money by the agent’s misappropriation, conversion, or unlawful withholding of money belonging to the senior consumer in the course of a transaction involving annuities. The amount of restitution cannot exceed the amount misappropriated, converted, or unlawfully withheld.
Any applicable penalty under the Florida Insurance Code may be reduced or eliminated, according to a schedule adopted by the office or the department, as appropriate, if corrective action for the senior was taken promptly after a violation was discovered.
[Source: §627.4554(7)]

Prohibited Charges


An annuity contract issued to a senior consumer age 65 or older, may not contain surrender or deferred sales charges for a withdrawal of money from an annuity exceeding ten percent of the amount withdrawn. The charge must be reduced so no surrender or deferred sales charge exists after the end of the 10th policy year or 10 years after the premium is paid, whichever is later. This does not apply to annuities purchased by an accredited investor or to the IRS annuities specified above.
[Source: §627.4554(8)]






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