Annuity Regulation

Agent Responsibilities


Any individual who solicits insurance products, including annuities (fixed and/or variable) must hold a valid license for that line of business issued by the Department of Financial Services. A licensed individual also must be appointed as an agent to represent an insurance or annuity company before he or she may “transact insurance”.   In short, an agent must simultaneously hold a license from the state and an appointment from an insurance company to solicit or transact a line of insurance.  One is not effective without the other. 


In Florida, an agent's license does not have an expiration or renewal date – it may remain in force perpetually.  (Of course, the Department may suspend or revoke an agent’s license for violations of the Insurance Code or Department rules.If a licensee loses an appointment for any line of business, his or her license will remain valid for 48 months. However, the licensee may not engage in insurance activity for that line of business until a new appointment is obtained. If the agent remains unappointed for 48 months, the license lapses.  Appointments are valid for two years, and must be renewed by the appointing company to remain in force.


Text Box: Agent Licensing

The Florida Insurance Code requires anyone “transacting insurance” within Florida to have a valid Florida-issued license. The law makes no distinction between agents and brokers.  One of the major roles of an insurance agent is to solicit insurance.  Florida law defines “solicitation of insurance” as:

“any attempt to persuade any person to purchase an insurance product by: describing the benefits or terms of insurance coverage, including premiums or rates of return; distributing an invitation to contract to prospective purchasers; making general or specific recommendations as to insurance products; completing orders or applications for insurance products; or comparing insurance products, advising as to insurance matters, or interpreting policies or coverages.  

Please note: under Florida law "insurance products" include annuities of all types — fixed, indexed and variable.

Unlicensed clerical personnel in insurance agencies may service a contractholder’s account, answer clerical questions, assist contractholders with paperwork, etc. – provided they do so under the supervision of a licensed agent and are not paid based on sales commissions.  Unlicensed personnel should not give advice, compare contract features, or initiate contact with clients.     
Text Box: Fiduciary Responsibility 

A fiduciary is a person in a position of financial trust. Attorneys, accountants, trust officers, pension plan trustees, stockbrokers and insurance agents are all considered fiduciaries.  Insurance agents and brokers may owe a fiduciary duty to both to the companies they represent and to the insurance buying public.  Agents who make recommendations to clients have an obligation to be knowledgeable about the features and provisions of the products they sell, as well as the prudent use of these products.  Agents also must take the time to become acquainted with the client's financial needs, situation and objectives.  Agents collect premiums on behalf of the insurers they represent, so they also have a fiduciary duty to submit those monies to the insurer promptly. 

Insurance agents and brokers voluntarily accept this fiduciary responsibility and implicitly agree to carry out that duty in good faith.  That has been interpreted by the courts to mean that fiduciaries must act reasonably to avoid negligence and to not favor anyone else's interest (including their own) over that of their clients or the companies that appointed them.  Fiduciaries owe their principals (the person they represent):

Utmost Care. One standard applied to fiduciaries is the "prudent man rule", which states that the fiduciary should behave as a "prudent person" would under the same circumstances.  This can be a very vague standard, but it is one that courts have relied on over the years. Professionals are usually held to a higher standard of conduct — to exercise "utmost care". This higher standard is warranted because professionals are assumed to be more knowledgeable and experienced than an ordinary prudent person.  One can argue that clients seek out and are willing to pay for professional advice precisely because of the added knowledge and experience the professional brings to the decision-making process — and therefore should be held to that higher standard.   

Integrity — this applies to the fiduciary's soundness of moral principle and character: the agent must act with fidelity to the principal's interest and with complete honesty. 

Honesty and Duty of Full Disclosure of all material facts, either known, within the knowledge of or reasonably discoverable by the agent which could influence in any way the principal's decisions, actions or willingness to enter into a transaction. 

Loyalty — An obligation to refrain from acquiring any interest adverse to that of a principal without full and complete disclosure of all material facts and obtaining the principal's informed consent. This precludes the agent from personally benefiting from secret profits, competing with the principal or obtaining an advantage from the agency for personal benefit of any kind. 

Duty of Good Faith — includes total truthfulness, absolute integrity and total fidelity to the principal's interest. The duty of good faith prohibits taking advantage of the principal through the slightest misrepresentation, concealment, threat or adverse pressure of any kind.

In the case of conflicting interests, the agent must disclose the "dual agency" (acting for two parties at the same time) or risk being accused of fraud from either or both principals.   Most brokers are compensated by commissions. This, in itself, creates a difficulty since there is an inherent conflict of interest.   It is common knowledge to most insurance purchasers that agents and brokers earn a sales commission, which may mitigate the conflict somewhat. 


Florida courts addressed this commonly held knowledge in the case of Beardmore v. Abbottruling that a broker does have a fiduciary responsibility to his clients, but the broker's failure to disclose the full amount of his commission does not breach that duty.  In this case, the client did not inquire as to the size of the commission at the time of the purchase, and broker did not volunteer the information.  If the client had asked that question, presumably the courts would have ruled that the broker must honestly disclose that information as a matter of fiduciary trust.  It should be noted that the client was very familiar with the insurance market, and knew that the broker would receive a commission it was disclosure of the exact amount that was the crux of this case.  Agents should, at least, make clients aware that they may receive a commission as part of an insurance/annuity transaction. 


The fiduciary duty of insurance brokers was also addressed in another case: Moss v Appel. In this case, a broker helped a small business set up a pension funded with an annuity contract, and the broker was also hired to handle administrative paperwork for the pension plan.  The broker received notice from the annuity company that it was in seeking additional capital to remain in business, but he did not alert the clients to that notice.  The annuity company later became insolvent.  The courts ruled that the broker owed a fiduciary responsibility to his clients based on the sale of the annuity and the ongoing consulting/administrative contract.   As the court noted:  "It is undisputed that [the broker] was acting as an insurance broker, not an insurance agent employed by a particular company, when he sold the plaintiffs the annuity."  Presumably that distinction means that the broker should have placed the client's interests above any duty he may have felt to keep the contract in force with the troubled annuity company (even if it was the company that compensated him for the sale).  In this case, there was a contract with the clients to administer the plan.  The court did not indicate how that continuing relationship affected its ruling or for how long after the annuity sale a broker (in the absence of a continuing relationship) owes that duty to his clients.   These cases illustrate some of the problems that can arise for insurance brokers.  As noted earlier, annuities are more likely to be "shopped around", which increases the likelihood that the sales person will be viewed as a broker, and not as an agent.        



Agent as Beneficiary


Florida law has a long-standing prohibition against life insurance agents being named as beneficiary of the policies they sell.  Unless the agent has a bona fide insurable interest in the life of the insured, being named as beneficiary poses a serious conflict of interest.    The Safeguard Our Seniors Act extends this prohibition to the naming of  the agent’s family members as beneficiary of a policy sold by the agent.  Family members are defined as the agent’s spouse, parents, grandparents, children, siblings, aunts or uncles, nieces or nephews, first cousins (as well as any of these in-law, half- or step-  relations).   There are two exceptions to this prohibition: when the policy’s insured is a family member of the agent or if the agent has a bona fide insurable interest in the life of the insured (for example, the insured is a business partner of the agent).   The new law also prohibits agents from selling life insurance to a client in which the agent or a family member of the agent acts as the client’s guardian, trustee or has power of attorney over the client’s affairs.




Ongoing agent requirements  


Florida law requires an agent to notify the Department of Financial Services in writing, within 60 days, of any changes to his or her name, residence address, business street address, mailing address, phone numbers or email address.  Change of name/address forms are available on the Department website. (


Under Florida law any agent who has been found guilty (or plead guilty or no lo contendere ("no contest")) to any felony or a crime punishable by imprisonment of 1 year or more must notify the Department in writing within 30 days. 



Continuing education


To maintain a life or health license, agents must complete at least 24 credits of continuing education every two years in courses approved by the Department.  Florida Statutes Chapter 626.2815 The rules provide exceptions for persons with certain professional designations (CLUs, ChCFs, etc.). Agents licensed less than six years may earn credit in courses rated basic, intermediate or advanced.  Those who have been licensed for more than six years must complete only 20 credits every two years, but these credits must be in intermediate or advanced level courses.  Each agent must complete, as part of his or her required number of continuing education credits every two years, a minimum of three credits of continuing education on the subject of ethics approved by the Department.   Life-licensed agents must also complete three credits on the subject of suitability which can also be used to meet the ethics requirement.  This course qualifies for that suitability requirement.


Agents will not be able to renew their appointments, reinstate old ones or obtain new ones, if they are out of compliance with the continuing education requirements. 




Agent Appointments


A licensee may not transact insurance until he or she is appointed by an authorized insurer for the class of licensure held. For example, if an individual is licensed for the classes of life, health and variable annuity, and wishes to market all three types of products, he or she must be appointed by either an insurance company authorized in its certificate of authority to transact all three of these lines of business or by separate companies for each line.


Appointments need to be renewed every two years.  If the agent fails to comply with continuing education requirements, the Department will not allow renewal.  



Premium payments


Under the law of agency, an agent is the lawful representative of the principal, which in this case is the insurance company. Payment of premiums or other sums to the agent is the same as paying them to the insurance company. Because of this, the agent has a fiduciary responsibility to turn the funds over to the insurance company immediately, and not to use them for his or her own purposes.  If held by the agent, these funds should be held in a segregated account, i.e., separate from personal funds.  Converting those funds to personal use is a crime known as embezzlement or conversion.  The severity of the crime depends on the amount of funds that were misapplied. Florida law requires agents to keep records for at least three years if the transaction pertains to premium payments.





Generally speaking, agents will show proposals for companies that have appointed the agent.  Agents may, however, show proposals for other companies – provided the agent is licensed and appointed for that particular line of insurance. The agent may furnish materials and show proposals for any company authorized to sell that line in Florida. However, if the agent actually writes the business, the company must formally appoint the agent when the agent submits the application.  Furthermore, the company may not pay the agent a commission until the appointment is actually issued.

Brokers vs. Agents


Agents represent the insurers that appoint them.  Brokers legally represent the annuity purchaser (or prospective purchasers). A broker solicits and accepts applications for insurance and then places the coverage with an insurer. The business is not in force and the insurance company is not bound until it accepts the application. Technically speaking, a broker does not represent anyone until prospect or client requests coverage  — then the broker represents the buyer.   


This distinction between agent and broker becomes blurred in the annuity market when independent (unaffiliated) agents are appointed by various companies to sell their products.  In many cases, a client will wish to purchase an annuity and the agent will show proposals from several different companies.  Is the sales person an agent representing the company's products, or broker representing the client's needs?   In practice, the regulatory distinction between brokers and agents is not significant, as Florida does not issue separate licenses for brokers. Instead, licensed agents may act as brokers for their clients.   There is, however, an important legal distinction:  brokers owe their ultimate fiduciary responsibility to their clients; agents owe a fiduciary responsibility to the company that appoints them.  Since a company can only pay commissions to appointed agents, a broker legally owes a fiduciary responsibility to both his clients and the annuity company.  These conflicting interests can sometimes place an agent or broker in a difficult position.


Text Box:  © 2011 Wall Street Instructors, Inc. No part of this material may be reproduced without the written permission of the publisher.

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