CS for CS for SB 2082 First Engrossed

20082082e1

A bill to be entitled

An act relating to insurance; providing a short title;

amending s. 626.171, F.S.; requiring that an applicant for

licensure as an insurance agent, customer representative,

adjuster, service representative, managing general agent,

or reinsurance intermediary provide to the Department of

Financial Services his or her home and office telephone

numbers and e-mail address; amending s. 626.2815, F.S.;

requiring persons licensed to solicit or sell life

insurance to complete a specified number of hours in

continuing education on the subject of suitability in

annuity and life insurance transactions; amending s.

626.551, F.S.; requiring that a licensee notify the

department within 60 days after a change in home or

business telephone numbers or e-mail address; amending s.

626.9521, F.S.; providing enhanced penalties for offenses

involving misleading representations or fraudulent

comparisons or omissions, the generation of unlawful fees

and commissions, or the use of fraudulent signatures;

providing for other enhanced penalties to supersede the

penalties provided by the act under certain conditions;

amending s. 626.9541, F.S.; revising the elements of the

offense known as "churning" to include direct or indirect

purchases made for the purpose of earning fees or

commissions; providing that the submission of certain

fraudulent signatures or the misrepresentation of a

licensee's qualifications constitute an unfair method of

competition and an unfair or deceptive act or practice;

amending s. 626.99, F.S.; revising requirements for life

insurance or annuity policies to increase the period of

time allowed for obtaining an unconditional refund;

requiring insurers for all types of annuities to provide a

buyer's guide and a policy summary to the buyer; amending

s. 627.4554, F.S.; providing for the regulation of

recommendations relating to the sale of life insurance

products to senior consumers; redefining the term

"annuity" and defining the term "life insurance contract";

requiring that an agent obtain financial and other

information concerning the senior consumer before

executing a purchase or exchange of an annuity or life

insurance contract; requiring that the agent perform a

suitability analysis relative to the investment he or she

recommends and document the analysis in writing; requiring

an agent to provide a comparison of current and

recommended products if the transaction involves the

replacement or exchange of an in-force insurance policy or

annuity; requiring an agent to provide information about

any surrender charges and tax consequences; authorizing

the department and commission to adopt rules; amending s.

627.805, F.S.; providing for regulation of the issuance

and sale of variable and indeterminate value contracts by

the Department of Financial Services, the Office of

Insurance Regulation, and the Office of Financial

Regulation; authorizing the department and the Financial

Services Commission to adopt rules; providing an effective

date for such rulemaking authority; providing for

applicability of such rules; providing an effective date.

Be It Enacted by the Legislature of the State of Florida:

Section 1. This act may be cited as the "John and Patricia

Seibel Act."

Section 2. Paragraph (a) of subsection (2) of section

626.171, Florida Statutes, is amended to read:

626.171 Application for license as an agent, customer

representative, adjuster, service representative, managing

general agent, or reinsurance intermediary.--

(2) In the application, the applicant shall set forth:

(a) His or her full name, age, social security number,

residence address, business address, and mailing address, home

telephone number, business telephone number, and e-mail address.

However, the application must contain a statement that an

applicant is not required to disclose his or her race or

ethnicity, gender, or native language, that he or she will not be

penalized for not doing so, and that the department will use this

information exclusively for research and statistical purposes and

to improve the quality and fairness of the examinations.

Section 3. Paragraph (k) is added to subsection (3) of

section 626.2815, Florida Statutes, to read:

626.2815 Continuing education required; application;

exceptions; requirements; penalties.--

(3)

(k) Effective January 1, 2009, and until January 1, 2010,

any person who holds a license to solicit or sell life insurance

in this state must complete a minimum of 3 hours in continuing

education, approved by the department, on the subject of

suitability in annuity and life insurance transactions. A

licensee may use the hours obtained under this paragraph to

satisfy the requirement for continuing education in ethics under

paragraph (a).

Section 4. Section 626.551, Florida Statutes, is amended to

read:

626.551 Notice of change of address, name.--Every licensee

shall notify the department in writing within 60 days after a

change of name, residence address, principal business street

address, or mailing address, home telephone number, business

telephone number, or e-mail address. A Any licensed agent who has

moved his or her residence from this state shall have his or her

100

license and all appointments immediately terminated by the

101

department. Failure to notify the department within the required

102

time period shall result in a fine not to exceed $250 for the

103

first offense and, for subsequent offenses, a fine of at least

104

not less than $500 or suspension or revocation of the license

105

pursuant to s. 626.611 or s. 626.621.

106

Section 5. Section 626.9521, Florida Statutes, is amended

107

to read:

108

626.9521 Unfair methods of competition and unfair or

109

deceptive acts or practices prohibited; penalties.--

110

(1) No person shall engage in this state in any trade

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practice which is defined in this part as, or determined pursuant

112

to s. 626.951 or s. 626.9561 to be, an unfair method of

113

competition or an unfair or deceptive act or practice involving

114

the business of insurance.

115

(2) Except as provided in subsection (3), any person who

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violates any provision of this part is shall be subject to a fine

117

in an amount not greater than $2,500 for each nonwillful

118

violation and not greater than $20,000 for each willful

119

violation. Fines under this subsection may not exceed an

120

aggregate amount of $10,000 for all nonwillful violations arising

121

out of the same action or an aggregate amount of $100,000 for all

122

willful violations arising out of the same action. The fines

123

authorized by this subsection may be imposed in addition to any

124

other applicable penalty.

125

(3)(a) If a person violates s. 626.9541(1)(l), the offense

126

known as "twisting," or violates s. 626.9541(1)(aa), the offense

127

known as "churning," the person commits a felony of the third

128

degree, punishable as provided in s. 775.082, and a fine not

129

greater than $5,000 shall be imposed for each nonwillful

130

violation or a fine not greater than $30,000 shall be imposed for

131

each willful violation. However, if the victim of such offense is

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65 years of age or older or the agent knew or should have known

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the victim is mentally disabled, the person commits a felony of

134

the second degree, punishable as provided in s. 775.082, and a

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fine not greater than $5,000 shall be imposed for each nonwillful

136

violation or a fine not greater than $30,000 shall be imposed for

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each willful violation. To impose criminal penalties under this

138

paragraph, the practice of "churning" or "twisting" must involve

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fraudulent conduct.

140

(b) If a person violates s. 626.9541(1)(ee) by submitting

141

fraudulent signatures on an application or policy-related

142

document, the person commits a felony of the third degree,

143

punishable as provided in s. 775.082, and a fine not greater than

144

$5,000 shall be imposed for each nonwillful violation or a fine

145

not greater than $30,000 shall be imposed for each willful

146

violation.

147

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amount of $20,000 for all nonwillful violations arising out of

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the same action or an aggregate amount of $150,000 for all

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willful violations arising out of the same action.

151

Section 6. Any increase in the fines imposed under s.

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626.9521, Florida Statutes, which exceeds the increase provided

153

by this act shall supersede the amendments made to that section

154

by this act if such increase is enacted during the 2008

155

legislative session and becomes law, and the amendments to s.

156

626.9521, Florida Statutes, made by this act shall not take

157

effect.

158

Section 7. Paragraph (aa) of subsection (1) of section

159

626.9541, Florida Statutes, is amended, and paragraphs (ee) and

160

(ff) are added to that subsection, to read:

161

626.9541 Unfair methods of competition and unfair or

162

deceptive acts or practices defined.--

163

(1) UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE

164

ACTS.--The following are defined as unfair methods of competition

165

and unfair or deceptive acts or practices:

166

(aa) Churning.--

167

1. Churning is the practice whereby policy values in an

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existing life insurance policy or annuity contract, including,

169

but not limited to, cash, loan values, or dividend values, and in

170

any riders to that policy or contract, are directly or indirectly

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used utilized to purchase another insurance policy or annuity

172

contract with that same insurer for the purpose of earning

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additional premiums, fees, commissions, or other compensation:

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a. Without an objectively reasonable basis for believing

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that the replacement or extraction will result in an actual and

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demonstrable benefit to the policyholder;

177

b. In a fashion that is fraudulent, deceptive, or otherwise

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misleading or that involves a deceptive omission;

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c. When the applicant is not informed that the policy

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values including cash values, dividends, and other assets of the

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existing policy or contract will be reduced, forfeited, or used

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utilized in the purchase of the replacing or additional policy or

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contract, if this is the case; or

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d. Without informing the applicant that the replacing or

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additional policy or contract will not be a paid-up policy or

186

that additional premiums will be due, if this is the case.

187

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Churning by an insurer or an agent is an unfair method of

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competition and an unfair or deceptive act or practice.

190

2. Each insurer shall comply with sub-subparagraphs 1.c.

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and 1.d. by disclosing to the applicant at the time of the offer

192

on a form designed and adopted by rule by the commission if, how,

193

and the extent to which the policy or contract values (including

194

cash value, dividends, and other assets) of a previously issued

195

policy or contract will be used to purchase a replacing or

196

additional policy or contract with the same insurer. The form

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must shall include disclosure of the premium, the death benefit

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of the proposed replacing or additional policy, and the date when

199

the policy values of the existing policy or contract will be

200

insufficient to pay the premiums of the replacing or additional

201

policy or contract.

202

3. Each insurer shall adopt written procedures to

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reasonably avoid churning of policies or contracts that it has

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issued, and failure to adopt written procedures sufficient to

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reasonably avoid churning shall be an unfair method of

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competition and an unfair or deceptive act or practice.

207

(ee) Fraudulent signatures on an application or policy-

208

related document.--Willfully submitting to an insurer on behalf

209

of a consumer an insurance application or policy-related document

210

bearing a false or fraudulent signature.

211

(ff) Unlawful use of designations; misrepresentation of

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agent qualifications.--

213

1. A licensee may not, in any sales presentation or

214

solicitation for insurance, use a designation or title in such a

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way as to falsely imply that the licensee:

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a. Possesses special financial knowledge or has obtained

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specialized financial training; or

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b. Is certified or qualified to provide specialized

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financial advice to senior citizens.

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2. A licensee may not use terms such as "financial advisor"

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in such a way as to falsely imply that the licensee is licensed

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or qualified to discuss, sell, or recommend financial products

223

other than insurance products.

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3. A licensee may not, in any sales presentation or

225

solicitation for insurance, falsely imply that he or she is

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qualified to discuss, recommend, or sell securities or other

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investment products in addition to insurance products.

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4. A licensee who also holds a designation as a certified

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financial planner (CFP), chartered life underwriter (CLU),

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chartered financial consultant (ChFC), life underwriter training

231

council fellow (LUTC), or the appropriate license to sell

232

securities from the Financial Industry Regulatory Authority

233

(FINRA) may inform the customer of those licenses or designations

234

and make recommendations in accordance with those licenses or

235

designations, and in so doing does not violate this paragraph.

236

Section 8. Paragraph (a) of subsection (4) of section

237

626.99, Florida Statutes, is amended to read:

238

626.99 Life insurance solicitation.--

239

(4) DISCLOSURE REQUIREMENTS.--

240

(a) The insurer shall provide to each prospective purchaser

241

a buyer's guide and a policy summary prior to accepting the any

242

applicant's initial premium or premium deposit, unless the policy

243

for which application is made provides contains a provision for

244

an unconditional refund for a period of at least 14 10 days, or

245

unless the policy summary contains an offer of such an

246

unconditional refund, in which event the buyer's guide and policy

247

summary must be delivered with the policy or prior to delivery of

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the policy. With respect to fixed annuities, the insurer shall

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provide to each prospective purchaser a buyer's guide to

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annuities and a contract summary as provided in the National

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Association of Insurance Commissioners (NAIC) Model Annuity and

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Deposit Fund Regulation and the policy must provide shall contain

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a provision for an unconditional refund for a period of at least

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14 10 days.

255

Section 9. Section 627.4554, Florida Statutes, is amended

256

to read:

257

627.4554 Annuity and life insurance investments by

258

seniors.--

259

(1) PURPOSE; CONSTRUCTION.--

260

(a) The purpose of this section is to set forth standards

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and procedures for making recommendations to senior consumers

262

which result in a transaction involving life insurance or annuity

263

products to appropriately address the insurance needs and

264

financial objectives of senior consumers at the time of the

265

transaction.

266

(b) A violation of Nothing in this section does not shall

267

be construed to create or imply a private cause of action for a

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violation of this section.

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(2) APPLICATION.--This section applies to any

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recommendation to purchase or exchange an annuity or life

271

insurance product which is made to a senior consumer by an

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insurance agent, or an insurer where no agent is involved, and

273

which, that results in the purchase or exchange recommended.

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(3) DEFINITIONS.--For purposes of this section, the term:

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(a) "Annuity contract" means a fixed annuity, fixed equity

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indexed annuity, or variable annuity that is individually

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solicited, whether the product is classified as an individual

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annuity or a group annuity.

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(b) "Life insurance contract" means a whole life, universal

280

life, variable life, or equity indexed life insurance contract.

281

(c)(b) "Recommendation" means advice provided by an

282

insurance agent, or an insurer if no insurance agent is involved,

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to an individual senior consumer which results in a purchase or

284

exchange of an annuity or life insurance contract in accordance

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with that advice.

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(d)(c) "Senior consumer" means a person 65 years of age or

287

older. In the event of a joint purchase by more than one party, a

288

purchaser is considered to be a senior consumer if any of the

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parties is age 65 or older.

290

(4) DUTIES OF INSURERS AND INSURANCE AGENTS.--

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(a) In recommending to a senior consumer the purchase or

292

exchange of an annuity or life insurance contract which or the

293

exchange of an annuity that results in another insurance

294

transaction or series of insurance transactions, an insurance

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agent, or an insurer if no insurance agent is involved, must

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shall have an objectively reasonable basis grounds for believing

297

that the recommendation is suitable for the senior consumer based

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on the basis of the facts disclosed by the senior consumer as to

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his or her investments and other insurance products and as to his

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or her financial situation and needs.

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(b) Before executing a purchase or exchange of an annuity

302

or life insurance contract resulting from a recommendation to a

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senior consumer, an insurance agent, or an insurer if no

304

insurance agent is involved, shall make reasonable efforts to

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obtain information concerning the suitability of senior

306

consumer's financial status, tax status, and investment

307

objectives and such other information used or considered to be

308

reasonable by the insurance agent, or the insurer if no agent is

309

involved, in making the recommendation. The information shall

310

include, at a minimum:

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1. Personal information including the age and sex of the

312

parties to the annuity or life insurance, and the ages and number

313

of any dependents;

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2. Tax status of the consumer;

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3. Investment objectives of the consumer;

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4. The source of the funds to be used to purchase the

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annuity;

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5. The applicant's annual income;

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6. Intended use of the annuity or life insurance policy;

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7. The applicant's existing assets, including investment

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and life insurance holdings;

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8. The applicant's liquid net worth and liquidity needs;

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9. The applicant's financial situation and needs;

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10. The applicant's risk tolerance; and

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11. Such other information used or considered to be

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relevant by the insurance agent or insurer in making

327

recommendations to the consumer regarding the purchase or

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exchange of an annuity or life insurance contract.

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This information shall be collected on a form adopted by rule by

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the department and completed and signed by the applicant and

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agent. Questions requesting this information must be presented in

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at least 12-point type and be sufficiently clear so as to be

334

readily understandable by both the agent and the consumer. A true

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and correct executed copy of the form shall be provided by the

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agent to the insurer within 10 days after execution of the form,

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and shall be provided to the consumer no later than the date of

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delivery of the contract or contracts.

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insurance agent, or an insurer if no insurance agent is involved,

341

has no shall not have any obligation to a senior consumer under

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paragraph (a) related to any recommendation if the senior

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consumer:

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a. Refuses to provide relevant information requested by the

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insurer or insurance agent;

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b. Decides to enter into an insurance transaction that is

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not based on a recommendation of the insurer or insurance agent;

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c. Fails to provide complete or accurate information.

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2. An insurer or insurance agent's recommendation subject

351

to subparagraph 1. shall be objectively reasonable under all the

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circumstances actually known to the insurer or insurance agent at

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the time of the recommendation.

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3. If the consumer refuses to provide relevant information

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requested by the insurance agent or insurer, before the execution

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of the sale the insurance agent or insurer shall obtain a signed

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verification from the senior consumer on a form adopted by rule

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by the department that he or she refuses to provide the requested

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information and may be limiting protections afforded by this

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section regarding the suitability of the sale.

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(d) In addition to the information required by paragraph

362

(b), before the execution of a replacement or exchange of an

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annuity or life insurance policy resulting from a recommendation,

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the insurance agent shall also provide, on a form adopted by rule

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by the department, information concerning differences between

366

each existing annuity or life insurance policy and the annuity or

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life insurance policy being recommended in order to determine the

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suitability of the recommendation and its benefit to the

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consumer. A true and correct executed copy of this form shall be

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provided by the agent to the insurer within 10 days after

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execution of the form, and shall be provided to the consumer no

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later than the date of delivery of the contract or contracts. The

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information shall include, at a minimum:

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1. A comparison of the benefits, terms, and limitations

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between the annuities and life insurance policies;

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2. A comparison of any fees and charges between the

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annuities and life insurance policies;

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3. A written basis for the recommended exchange, including

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the overall advantages and disadvantages to the consumer if the

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recommendation is followed; and

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4. Such other information used or considered to be relevant

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by the insurance agent or the insurer in making recommendations

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to the consumer regarding the replacement or exchange of an

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annuity or life insurance policy.

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(e) Prior to the execution of a purchase or exchange of an

386

annuity or life insurance policy resulting from a recommendation,

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an agent shall also disclose to the consumer that such purchase

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or exchange may have tax consequences and that the applicant

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should contact his or her tax advisor for more information.

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(f)(d)1. An insurer or insurance agent must shall ensure

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that a system to supervise recommendations, which is reasonably

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designed to achieve compliance with this section, is established

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and maintained by complying with subparagraphs 3., 4., and 5., or

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shall establish and maintain such a system, including, but not

395

limited to:

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a. Maintaining written procedures.

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b. Conducting periodic reviews of its records that are

398

reasonably designed to assist in detecting and preventing

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violations of this section.

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2. A managing general agent and an insurance agency shall

401

adopt a system established by an insurer to supervise

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recommendations of its insurance agents which is reasonably

403

designed to achieve compliance with this section or shall

404

establish and maintain such a system, including, but not limited

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to:

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a. Maintaining written procedures.

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b. Conducting periodic reviews of records that are

408

reasonably designed to assist in detecting and preventing

409

violations of this section.

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3. An insurer may contract with a third party, including a

411

managing general agent or an insurance agency, to establish and

412

maintain a system of supervision as required by subparagraph 1.

413

with respect to insurance agents under contract with or employed

414

by the third party.

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4. An insurer shall make reasonable inquiry to ensure that

416

such third party contracting under subparagraph 3. is performing

417

the functions required under subparagraph 1. and shall take such

418

action as is reasonable under the circumstances to enforce the

419

contractual obligation to perform the functions. An insurer may

420

comply with its obligation to make reasonable inquiry by:

421

a. Annually obtaining a certification from a third party

422

senior manager who has responsibility for the delegated functions

423

that the manager has a reasonable basis to represent, and does

424

represent, that the third party is performing the required

425

functions.

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b. Based on reasonable selection criteria, periodically

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selecting third parties contracting under subparagraph 3. for a

428

review to determine whether the third parties are performing the

429

required functions. The insurer shall perform any procedures

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necessary to conduct the review which are reasonable under the

431

circumstances.

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5. An insurer that contracts with a third party pursuant to

433

subparagraph 3. and complies with the requirements specified in

434

subparagraph 4. is deemed to have fulfilled its responsibilities

435

under subparagraph 1.

436

6. An insurer, managing general agent, or insurance agency

437

is not required by subparagraph 1. or subparagraph 2. to:

438

a. Review or provide for review of all transactions

439

solicited by an insurance agent; or

440

b. Include in its system of supervision an insurance

441

agent's recommendations to senior consumers of products other

442

than the annuities offered by the insurer, managing general

443

agent, or insurance agency.

444

7. A managing general agent or insurance agency contracting

445

with an insurer pursuant to subparagraph 3. shall promptly, when

446

requested by the insurer pursuant to subparagraph 4., provide a

447

certification as described in subparagraph 4. or provide a clear

448

statement that the managing general agent or insurance agency is

449

unable to meet the certification criteria.

450

8. A person may not provide a certification under sub-

451

subparagraph 4.a. unless the person is a senior manager with

452

responsibility for the delegated functions and has a reasonable

453

basis for making the certification.

454

(5) MITIGATION OF RESPONSIBILITY.--

455

(a) The office may order an insurer to take reasonably

456

appropriate corrective action, including rescission of the policy

457

or contract and a full refund of the premiums paid or the

458

accumulation value, whichever is greater, for any senior consumer

459

harmed by a violation of this section by the insurer or the

460

insurer's insurance agent.

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(b) The department may order:

462

1. An insurance agent to take reasonably appropriate

463

corrective action for any senior consumer harmed by a violation

464

of this section by the insurance agent.

465

2. A managing general agency or insurance agency that

466

employs or contracts with an insurance agent to sell or solicit

467

the sale of annuities to senior consumers to take reasonably

468

appropriate corrective action for any senior consumer harmed by a

469

violation of this section by the insurance agent.

470

471

for a violation of paragraph (4)(a), paragraph (4)(b), or

472

subparagraph (4)(c)2. may be reduced or eliminated, according to

473

a schedule adopted by the office or the department, as

474

appropriate, if corrective action for the senior consumer was

475

taken promptly after a violation was discovered.

476

(6) RECORDKEEPING.--

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(a) Insurers, managing general agents, insurance agencies,

478

and insurance agents shall each maintain or be able to make

479

available from the entity or entities responsible for maintaining

480

the records pursuant to paragraph (4)(f), to the department or

481

office, as appropriate, records of the information collected from

482

the senior consumer and other information used in making the

483

recommendations that were the basis for insurance transactions

484

for 5 years after the insurance transaction is completed by the

485

insurer. An insurer is permitted, but shall not be required, to

486

maintain documentation on behalf of an insurance agent.

487

(b) Records required to be maintained by this subsection

488

regulation may be maintained in paper, photographic,

489

microprocess, magnetic, mechanical, or electronic media, or by

490

any process that accurately reproduces the actual document.

491

(7) EXEMPTIONS.--Unless otherwise specifically included,

492

this section does not apply to recommendations involving:

493

(a) Direct-response solicitations where there is no

494

recommendation based on information collected from the senior

495

consumer pursuant to this section.

496

(b) Contracts used to fund:

497

1. An employee pension or welfare benefit plan that is

498

covered by the Employee Retirement and Income Security Act;

499

2. A plan described by s. 401(a), s. 401(k), s. 403(b), s.

500

408(k), or s. 408(p) of the Internal Revenue Code of 1986, as

501

amended, if established or maintained by an employer;

502

3. A government or church plan defined in s. 414 of the

503

Internal Revenue Code of 1986, as amended, a government or church

504

welfare benefit plan, or a deferred compensation plan of a state

505

or local government or tax-exempt organization under s. 457 of

506

the Internal Revenue Code of 1986, as amended;

507

4. A nonqualified deferred compensation arrangement

508

established or maintained by an employer or plan sponsor;

509

5. Settlements of or assumptions of liabilities associated

510

with personal injury litigation or any dispute or claim

511

resolution process; or

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6. Prepaid funeral contracts.

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(8) APPLICATION TO VARIABLE ANNUITIES AND VARIABLE LIFE

514

INSURANCE.--Compliance with the Financial Industry Regulatory

515

Authority National Association of Securities Dealers Conduct

516

Rules in effect on May 5, 2008 January 1, 2004, shall satisfy the

517

requirements under this section for the recommendation of

518

variable annuities and variable life insurance. This section does

519

not limit the department's ability to enforce the provisions of

520

this section with respect to insurance agents, insurance

521

agencies, and managing general agents, or the office's ability to

522

enforce the provisions of this section with respect to insurers.

523

(9) RULES.--The department and commission may adopt rules

524

to administer this section.

525

Section 10. Section 627.805, Florida Statutes, is amended

526

to read:

527

627.805 Regulation of variable and indeterminate value

528

contracts; rules.--The Department of Financial Services and the

529

Office of Insurance Regulation office, notwithstanding any other

530

provision of law, shall have the sole authority to regulate the

531

issuance and sale of variable and indeterminate value contracts

532

pursuant to their respective authority as conferred by state law.

533

The Office of Financial Regulation shall regulate the sale of

534

variable and indeterminate value contracts pursuant to its

535

authority under chapter 517. The Department of Financial Services

536

and, when applicable, the Financial Services Commission, may, and

537

the commission has authority to adopt rules pursuant to ss.

538

120.536(1) and 120.54 to implement the provisions of this part.

539

Section 11. The Department of Financial Services may adopt

540

rules to implement this act effective upon the act becoming law.

541

Such rules may not be effective until 60 days after the date on

542

which the final rule is adopted or January 1, 2009, whichever is

543

later.

544

Section 12. This act shall take effect January 1, 2009.

CODING: Words stricken are deletions; words underlined are additions.