Annuity Regulation4

Given the central role the insurance industry plays in millions of American lives and businesses, it is no wonder that it is subject to a number of regulators – the federal government, state governments, and industry watchdogs. The primary purpose of this regulation is to promote the public welfare by maintaining the solvency of insurance companies.  After all, policyholders depend on a company’s financial stability to pay benefits well into the future. One insolvent company can jeopardize thousands of insureds. In addition to ensuring the financial strength of individual insurers, regulators also provide consumer protection, enforce fair trade practices and take care that insurance contracts are offered to the public at fair prices. It is very important that insurance agents be aware of and comply with all insurance laws and regulations. 



Florida's Department of Financial Services and Office of Insurance Regulation


The Department of Financial Services, headed by Florida's Chief Financial Officer, and the Commissioner of the Office of Insurance Regulation oversee the insurance industry in accordance with the provisions of the Florida Insurance Code. They each have rule-making and enforcement powers to carry out their responsibilities.


The Florida Insurance Code is a broad set of regulatory principles.  It sets general policy, but leaves the details of regulation to the Department and Office.   The Florida Legislature adopted a Policyholder Bill of Rights to protect the insurance buying public.  The Bill of Rights sets forth a series of aspirational goals to guide the Department and Office in their day-to-day operations.  The Policyholder Bill of Rights can be found in the Florida Statutes, Chapter 626.9641


The State of Florida has taken a very strong position on the issue of unauthorized entities.  An unauthorized entity is an insurance company that is not licensed with the Florida Department of Financial Services.  Agents and brokers have responsibility for conducting reasonable research to ensure that they are not writing policies or placing business with unauthorized entities.  Lack of careful screening can result in significant financial loss to Florida residents due to unpaid claims and/or theft of premiums.  Agents may be held liable when representing these unauthorized entities.  It is the agent’s and broker’s responsibility to give fair and accurate information regarding the companies they represent.  
Any question about the authorized status of a company can be checked by calling the Florida Department of Financial Services at 1-877-693-5236 (inside Florida) or 850-413-3089 (outside Florida).  The Department urges all agents and brokers to adhere to this admonition.   
Text Box: Florida Policyholders’ Bill of Rights
(1)  The principles expressed in the following statements shall serve as standards to be followed by the department, commission, and office in exercising their powers and duties, in exercising administrative discretion, in dispensing administrative interpretations of the law, and in adopting rules:
(a)  Policyholders shall have the right to competitive pricing practices and marketing methods that enable them to determine the best value among comparable policies.
(b)  Policyholders shall have the right to obtain comprehensive coverage.
(c)  Policyholders shall have the right to insurance advertising and other selling approaches that provide accurate and balanced information on the benefits and limitations of a policy.
(d)  Policyholders shall have a right to an insurance company that is financially stable.
(e)  Policyholders shall have the right to be serviced by a competent, honest insurance agent or broker.
(f)  Policyholders shall have the right to a readable policy.
(g)  Policyholders shall have the right to an insurance company that provides an economic delivery of coverage and that tries to prevent losses.
(h)  Policyholders shall have the right to a balanced and positive regulation by the department, commission, and office.

(2)  This section shall not be construed as creating a civil cause of action by any individual policyholder against any individual insurer.


The Department of Financial Services focuses its regulations and authority on consumer and agent issues, such as agent licensing and anti-fraud efforts; while the Office of Insurance Regulation concentrates on regulation of insurance companies and contract terms.  The Department and the Office are empowered to investigate complaints, audit industry participants, and, if need be, rehabilitate insolvent insurers.   Let's take a quick look at a few regulations Florida imposes on insurance companies and agents.






Certificates of Authority


An admitted insurance company is one that the Office of Insurance Regulation has licensed to transact business in Florida under the provisions of the state laws — i.e., it holds a certificate of authority to operate in Florida. Put another way it is an “authorized” company.


Insurance companies that have not been authorized by the Office do not come under the jurisdiction of the Florida Office of Insurance Regulation — they are not subject to examination of its financial soundness, approval of types of coverages offered, nor the appropriateness of its advertising. Florida's Life and Health Guaranty Fund (described below) only covers the liabilities of authorized insurers, so anyone purchasing policies from unauthorized companies is at risk if those insurers cannot meet their claims.  In Florida, an agent is personally liable for any insurance contract he or she places with an unauthorized insurer. 


The Department of Financial Services imposes severe penalties on agents who aid and abet these illegal operations:


¨ Conviction of a third-degree felony,

¨ Liability for all unpaid claims, and

¨ Suspension or revocation of all insurance licenses.


                                                                                                                                                          Florida Statutes Chapter 626.901




Insurance policies are only of value if there is a high probability that the company will be able to fulfill its promises far into the future.   One reason for state regulation of insurers is to ensure the financial integrity of insurance companies operating in the state.  Insurance regulators require companies to file annual reports, and will audit insurers' financial situation at least every three years.


Occasionally, an insurance company will fail.  When this happens, state regulators will appoint a receiver to liquidate or reorganize the insurer in a process similar to bankruptcy.  If liquidated, the Florida Life and Health Guaranty Association – an organization comprised of all authorized life and health insurers in Florida — takes over the duties of the failed insurer: collecting premiums, servicing the policy and paying claims. Through this association, the industry collectively “bails out” the occasional failed firm.  The Association will pay claims against the failed company’s traditional life insurance products and fixed annuities (but not variable products). The Association will pay up to $300,000 in death benefits for life insurance ($100,000 in cash value) or $300,000 for fixed annuity payments. Florida law prohibits agents from referring to this protection as part of their sales presentations.


Text Box:  © 2008 Wall Street Instructors, Inc. No part of this material may be reproduced without the written permission of the publisher.

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