Law & Ethics Update

Life Advertising

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]


Standards for Marketing [Chapter 69B-191.057]

All health insurance agents and sales reps of HMOs engaged Florida whether in sales, solicitation, or communication with current or prospective subscribers are bound by the advertising rules under the OIR, HMO, and Form and Content of Advertisements (Rule 69O-191.060). Specifically, the HMO is initially, and continues to be, as long as they hold a certificate of authority, responsible for the acts of its agents and representatives.

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 topic of this section is seniors and annuities – to make clear the standards, procedures, and laws applicable to these customers and products.

· When making recommendations to senior consumers that result in the purchase of an annuity product be certain to document how you appropriately addressed the insurance needs and financial objectives of the senior consumers at the time of a transaction.

· A violation of Annuity Investments by Seniors does not create, imply nor exclude the possibility of a private cause of action.

· Nothing subjects an insurer to criminal or civil liability for the acts of independent individuals not affiliated with that insurer for selling its products, when sales are made without authorization by the insurer.
[Source: §627.4554(1)]




Any recommendation to purchase or exchange an annuity made to a senior consumer by an insurance agent, or an insurer where no agent is involved, and results in the purchase or exchange recommended is governed by state statutes. [Source: §627.4554(2)]



Duties of Insurers and Insurance Agents

In recommending to a senior consumer the purchase or exchange of an annuity 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 senior consumer based on the facts disclosed by the senior 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 senior, an insurance agent or insurer must make reasonable efforts to obtain information concerning the  suitability of the recommendation. The information must include, at a minimum: 

· Personal information, including the age and sex of the parties to the annuity and the ages and number of any dependents;

· Tax status of the consumer;

· Investment objectives of the consumer;

· The source of the funds to be used to purchase the annuity;

· The applicant’s annual income;

· Intended use of the annuity;

· The applicant’s existing assets, including investment holdings;

· The applicant’s liquid net worth and liquidity needs;

· The applicant’s financial situation and needs;

· The applicant’s risk tolerance; and

· Information used or considered relevant by the insurance agent or insurer in making recommendations to the consumer regarding the purchase or exchange of an annuity contract.


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 to be readily 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). [Source: §627.4554(4)]



Duties of Insurers and Insurance Agents

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

· Refuses to provide relevant information;

· Decides to enter into an insurance transaction not based on a recommendation of the insurer or agent; or

· Fails to provide complete or accurate information.

· An insurer or agent’s recommendation must be objectively reasonable under all the circumstances actually known to the insurer or agent at the time of the recommendation.

If the consumer refuses to provide relevant information requested by the agent or insurer, before the execution of the sale the agent or insurer must obtain a signed verification from the senior on a form adopted by the department, that he or she refuses to provide the requested information and may be limiting protections afforded by the suitability of the sale. [Source: §627.4554(4)]



Duties of Insurers and Insurance Agents

In addition to the suitability information required before the execution of a replacement or exchange of an annuity contract resulting from a recommendation, the insurance agent must also provide, on a form adopted by the department, information concerning differences between each 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 ten days after execution of the form, and must be provided to the consumer no later than the date of delivery of the contract(s). The packet must include, at a minimum: 


· A comparison of the benefits, terms, and limitations between the annuity contracts.

· A comparison of any fees and charges between the annuity contracts.

· A written basis for the recommended exchange, including the overall advantages and disadvantages to the consumer if the recommendation is followed.

· Information used or considered to be relevant by the agent or insurer in making recommendations to the consumer regarding the replacement or exchange of an annuity contract.


Prior to the execution of a purchase or exchange of an annuity contract resulting from a recommendation, an agent must disclose that the purchase or exchange may have tax consequences and applicants should contact their tax advisors.



An insurer, agent, or managing general agent, and agency 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 or establish and maintain a system that includes: 


· Maintaining written procedures.

· Conducting periodic reviews of its records reasonably designed to assist in detecting and preventing violations.


An insurer that contracts with a third party and complies with the requirements is deemed to have fulfilled its responsibilities.
An insurer, managing general agent, or insurance agency is not required to:


· Review all transactions solicited by an insurance agent; or

· Include in its system of supervision an insurance agent’s recommendations to senior consumers of products other than the annuities offered, managing general agent, or insurance agency.

[Source: §627.4554(4)]


A managing general agent or agency contracting with an insurer must promptly, on request by the insurer, provide a certification or a clear statement that the managing general agent or agency is unable to meet the certification criteria. A person may not provide a certification unless the person is a senior manager with responsibility for the delegated functions and has a reasonable basis for making the certification. [Source: §627.4554(4)]



Mitigation of Responsibility

The office may order an insurer to take reasonable, appropriate, corrective action, including rescission of the policy or contract and a full refund of the premiums paid or the accumulation value, whichever is greater, for any senior consumer harmed by a violation of suitability by the insurer or the insurer’s agent.

The department may order: 

· An insurance agent to take reasonably appropriate corrective action, including monetary restitution of penalties or fees incurred by the senior consumer, for any senior consumer harmed by a violation of this section.

· A managing general agency or insurance agency that employs or contracts with an insurance agent to sell or solicit the sale of annuities to senior consumers, to take reasonably appropriate corrective action for any senior consumer harmed by a violation of suitability 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(5)]




Recordkeeping §627.4554(6)

Insurers, managing general agents, insurance agencies, and insurance agents must maintain or make available from the entity or entities responsible for maintaining the records to the department or office, records of the information collected from the senior consumer and other information used in making the recommendations that was the basis for insurance transactions for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but not required, to maintain documentation on behalf of an insurance agent.



Records that must be maintained can be maintained in paper, photocopies, or electronically by any process that accurately reproduces the actual document.



Unless otherwise specifically included, this does not apply to recommendations involving: 


· Direct-response solicitations where there is no recommendation based on information collected from the senior consumer.

· Contracts used to fund:

· An employee pension or welfare benefit plan covered by ERISA;

· A plan described by as 401(a), 401(k), 403(b), 408(k), or 408(p) by the IRS, established or maintained by an employer;

· A government or church plan defined in a 414 plan by the IRS, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under section 457 of the IRS;

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

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

Prepaid funeral contracts. [Source: §627.4554(7)]



Application to Annuities

Any person who is registered with a member of FINRA who is required to make a suitability determination (FINRA Rule 2111, Suitability and Rule 2090, Know Your Customer), and who makes and documents such determination is deemed to satisfy the requirements under our state requirements for the recommendation of annuities. This does not limit the department’s ability to enforce the provisions of the state with respect to insurance agents, insurance agencies, and managing general agents, or the office’s ability to enforce the provisions of this section with respect to insurers.  [Source: §627.4554(8)]

Prohibited Charges

An annuity contract issued to a senior consumer 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(9)]




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