| 1 | The Committee on Insurance recommends the following: |
| 2 |
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| 3 | Committee Substitute |
| 4 | Remove the entire bill and insert: |
| 5 | A bill to be entitled |
| 6 | An act relating to annuity investments by seniors; |
| 7 | creating s. 627.4554, F.S.; providing a purpose; providing |
| 8 | application; providing definitions; specifying duties of |
| 9 | insurers and insurance agents relating to making annuity |
| 10 | investment recommendations to senior consumers; providing |
| 11 | requirements; limiting responsibility of insurers or |
| 12 | insurance agents under certain circumstances; requiring a |
| 13 | system of compliance and supervision; providing for |
| 14 | enforcement by the Office of Financial Regulation and the |
| 15 | Department of Financial Services; authorizing the office |
| 16 | and department to issue orders to mitigate certain |
| 17 | responsibilities of insurers or insurance agents; |
| 18 | providing for reduction or elimination of certain |
| 19 | penalties under certain circumstances; providing |
| 20 | recordkeeping requirements; providing exemption from |
| 21 | application for variable annuities; providing an effective |
| 22 | date. |
| 23 |
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| 24 | Be It Enacted by the Legislature of the State of Florida: |
| 25 |
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| 26 | Section 1. Section 627.4554, Florida Statutes, is created |
| 27 | to read: |
| 28 | 627.4554 Annuity investments by seniors.-- |
| 29 | (1) PURPOSE; CONSTRUCTION.-- |
| 30 | (a) The purpose of this section is to set forth standards |
| 31 | and procedures for recommendations to senior consumers that |
| 32 | result in a transaction involving annuity products to |
| 33 | appropriately address the insurance needs and financial |
| 34 | objectives of senior consumers at the time of the transaction. |
| 35 | (b) Nothing in this section shall be construed to create |
| 36 | or imply a private cause of action for a violation of this |
| 37 | section. |
| 38 | (2) APPLICATION.--This section applies to any |
| 39 | recommendation to purchase or exchange an annuity made to a |
| 40 | senior consumer by an insurance agent, or an insurer where no |
| 41 | agent is involved, that results in the purchase or exchange |
| 42 | recommended. |
| 43 | (3) DEFINITIONS.--For purposes of this section: |
| 44 | (a) "Annuity" means a fixed annuity or variable annuity |
| 45 | that is individually solicited, whether the product is |
| 46 | classified as an individual annuity or a group annuity. |
| 47 | (b) "Recommendation" means advice provided by an insurance |
| 48 | agent, or an insurer if no insurance agent is involved, to an |
| 49 | individual senior consumer that results in a purchase or |
| 50 | exchange of an annuity in accordance with that advice. |
| 51 | (c) "Senior consumer" means a person 65 years of age or |
| 52 | older. In the event of a joint purchase by more than one party, |
| 53 | a purchaser is considered to be a senior consumer if any of the |
| 54 | parties is age 65 or older. |
| 55 | (4) DUTIES OF INSURERS AND INSURANCE AGENTS.-- |
| 56 | (a) In recommending to a senior consumer the purchase of |
| 57 | an annuity or the exchange of an annuity that results in another |
| 58 | insurance transaction or series of insurance transactions, an |
| 59 | insurance agent, or an insurer if no insurance agent is |
| 60 | involved, shall have reasonable grounds for believing that the |
| 61 | recommendation is suitable for the senior consumer on the basis |
| 62 | of the facts disclosed by the senior consumer as to his or her |
| 63 | investments and other insurance products and as to his or her |
| 64 | financial situation and needs. |
| 65 | (b) Before executing a purchase or exchange of an annuity |
| 66 | resulting from a recommendation to a senior consumer, an |
| 67 | insurance agent, or an insurer if no insurance agent is |
| 68 | involved, shall make reasonable efforts to obtain information |
| 69 | concerning the senior consumer's financial status, tax status, |
| 70 | and investment objectives and such other information used or |
| 71 | considered to be reasonable by the insurance agent, or the |
| 72 | insurer if no agent is involved, in making the recommendation. |
| 73 | (c)1. Except as provided under subparagraph 2., an |
| 74 | insurance agent, or an insurer if no insurance agent is |
| 75 | involved, shall not have any obligation to a senior consumer |
| 76 | under paragraph (a) related to any recommendation if the senior |
| 77 | consumer: |
| 78 | a. Refuses to provide relevant information requested by |
| 79 | the insurer or insurance agent; |
| 80 | b. Decides to enter into an insurance transaction that is |
| 81 | not based on a recommendation of the insurer or insurance agent; |
| 82 | or |
| 83 | c. Fails to provide complete or accurate information. |
| 84 | 2. An insurer or insurance agent's recommendation subject |
| 85 | to subparagraph 1. shall be reasonable under all the |
| 86 | circumstances actually known to the insurer or insurance agent |
| 87 | at the time of the recommendation. |
| 88 | (d)1. An insurer or insurance agent shall ensure that a |
| 89 | system to supervise recommendations that is reasonably designed |
| 90 | to achieve compliance with this section is established and |
| 91 | maintained by complying with subparagraphs 3., 4., and 5., or |
| 92 | shall establish and maintain such a system, including, but not |
| 93 | limited to: |
| 94 | a. Maintaining written procedures. |
| 95 | b. Conducting periodic reviews of its records that are |
| 96 | reasonably designed to assist in detecting and preventing |
| 97 | violations of this section. |
| 98 | 2. A managing general agent and an insurance agency shall |
| 99 | adopt a system established by an insurer to supervise |
| 100 | recommendations of its insurance agents that is reasonably |
| 101 | designed to achieve compliance with this section or shall |
| 102 | establish and maintain such a system, including, but not limited |
| 103 | to: |
| 104 | a. Maintaining written procedures. |
| 105 | b. Conducting periodic reviews of records that are |
| 106 | reasonably designed to assist in detecting and preventing |
| 107 | violations of this section. |
| 108 | 3. An insurer may contract with a third party, including a |
| 109 | managing general agent or an insurance agency, to establish and |
| 110 | maintain a system of supervision as required by subparagraph 1. |
| 111 | with respect to insurance agents under contract with or employed |
| 112 | by the third party. |
| 113 | 4. An insurer shall make reasonable inquiry to ensure that |
| 114 | such third party contracting under subparagraph 3. is performing |
| 115 | the functions required under subparagraph 1. and shall take such |
| 116 | action as is reasonable under the circumstances to enforce the |
| 117 | contractual obligation to perform the functions. An insurer may |
| 118 | comply with its obligation to make reasonable inquiry by: |
| 119 | a. Annually obtaining a certification from a third party |
| 120 | senior manager who has responsibility for the delegated |
| 121 | functions that the manager has a reasonable basis to represent, |
| 122 | and does represent, that the third party is performing the |
| 123 | required functions. |
| 124 | b. Based on reasonable selection criteria, periodically |
| 125 | selecting third parties contracting under subparagraph 3. for a |
| 126 | review to determine whether the third parties are performing the |
| 127 | required functions. The insurer shall perform any procedures |
| 128 | necessary to conduct the review that are reasonable under the |
| 129 | circumstances. |
| 130 | 5. An insurer that contracts with a third party pursuant |
| 131 | to subparagraph 3. and complies with the requirements specified |
| 132 | in subparagraph 4. is deemed to have fulfilled its |
| 133 | responsibilities under subparagraph 1. |
| 134 | 6. An insurer, managing general agent, or insurance agency |
| 135 | is not required by subparagraph 1. or subparagraph 2. to: |
| 136 | a. Review or provide for review of all transactions |
| 137 | solicited by an insurance agent; or |
| 138 | b. Include in its system of supervision an insurance |
| 139 | agent's recommendations to senior consumers of products other |
| 140 | than the annuities offered by the insurer, managing general |
| 141 | agent, or insurance agency. |
| 142 | 7. A managing general agent or insurance agency |
| 143 | contracting with an insurer pursuant to subparagraph 3. shall |
| 144 | promptly, when requested by the insurer pursuant to subparagraph |
| 145 | 4., give a certification as described in subparagraph 4. or give |
| 146 | a clear statement that the managing general agent or insurance |
| 147 | agency is unable to meet the certification criteria. |
| 148 | 8. A person may not provide a certification under sub- |
| 149 | subparagraph 4.a. unless the person is a senior manager with |
| 150 | responsibility for the delegated functions and has a reasonable |
| 151 | basis for making the certification. |
| 152 | (5) MITIGATION OF RESPONSIBILITY.-- |
| 153 | (a) The office may order an insurer to take reasonably |
| 154 | appropriate corrective action for any senior consumer harmed by |
| 155 | a violation of this section by the insurer or the insurer's |
| 156 | insurance agent. |
| 157 | (b) The department may order: |
| 158 | 1. An insurance agent to take reasonably appropriate |
| 159 | corrective action for any senior consumer harmed by a violation |
| 160 | of this section by the insurance agent. |
| 161 | 2. A managing general agency or insurance agency that |
| 162 | employs or contracts with an insurance agent to sell or solicit |
| 163 | the sale of annuities to senior consumers to take reasonably |
| 164 | appropriate corrective action for any senior consumer harmed by |
| 165 | a violation of this section by the insurance agent. |
| 166 | (c) Any applicable penalty under the Florida Insurance |
| 167 | Code for a violation of paragraph (4)(a), paragraph (4)(b), or |
| 168 | subparagraph (4)(c)2. may be reduced or eliminated, according to |
| 169 | a schedule adopted by the office or department, as appropriate, |
| 170 | if corrective action for the senior consumer was taken promptly |
| 171 | after a violation was discovered. |
| 172 | (6) RECORDKEEPING.-- |
| 173 | (a) Insurers, managing general agents, insurance agencies, |
| 174 | and insurance agents shall maintain or be able to make available |
| 175 | to the department or office, as appropriate, records of the |
| 176 | information collected from the senior consumer and other |
| 177 | information used in making the recommendations that were the |
| 178 | basis for insurance transactions for 5 years after the insurance |
| 179 | transaction is completed by the insurer. An insurer is |
| 180 | permitted, but shall not be required, to maintain documentation |
| 181 | on behalf of an insurance agent. |
| 182 | (b) Records required to be maintained by this regulation |
| 183 | may be maintained in paper, photographic, microprocess, |
| 184 | magnetic, mechanical or electronic media, or by any process that |
| 185 | accurately reproduces the actual document. |
| 186 | (7) EXEMPTIONS.--Unless otherwise specifically included, |
| 187 | this section shall not apply to recommendations involving: |
| 188 | (a) Direct-response solicitations where there is no |
| 189 | recommendation based on information collected from the senior |
| 190 | consumer pursuant to this section. |
| 191 | (b) Contracts used to fund: |
| 192 | 1. An employee pension or welfare benefit plan that is |
| 193 | covered by the Employee Retirement and Income Security Act; |
| 194 | 2. A plan described by Sections 401(a), 401(k), 403(b), |
| 195 | 408(k), or 408(p) of the Internal Revenue Code of 1986, as |
| 196 | amended, if established or maintained by an employer; |
| 197 | 3. A government or church plan defined in Section 414 of |
| 198 | the Internal Revenue Code of 1986, as amended, a government or |
| 199 | church welfare benefit plan, or a deferred compensation plan of |
| 200 | a state or local government or tax-exempt organization under |
| 201 | Section 457 of the Internal Revenue Code of 1986, as amended; |
| 202 | 4. A nonqualified deferred compensation arrangement |
| 203 | established or maintained by an employer or plan sponsor; |
| 204 | 5. Settlements of or assumptions of liabilities associated |
| 205 | with personal injury litigation or any dispute or claim |
| 206 | resolution process; or |
| 207 | 6. Prepaid funeral contracts. |
| 208 | (8) Compliance with the Conduct Rules of the National |
| 209 | Association of Securities Dealers in effect on January 1, 2004, |
| 210 | satisfies the requirements under this section for the |
| 211 | recommendation of variable annuities. This section does not |
| 212 | limit the department's ability to enforce the provisions of this |
| 213 | section with respect to insurance agents, insurance agencies, |
| 214 | and managing general agents, or the office's ability to enforce |
| 215 | the provisions of this section with respect to insurers. |
| 216 | Section 2. This act shall take effect October 1, 2004. |