On June 16, 2009, the Florida Department of Financial Services ("DFS") held a public hearing on its proposed Rule 69B-162.011 - "Suitability and Disclosure in Annuity Contract - Forms Required." The proposed Rule seeks to adopt an "Annuity Suitability Questionnaire" form and a "Disclosure and Comparison of Annuity Contracts" form (collectively, the "Forms") to be used when an insurance agent sells an annuity to a senior consumer. The proposed Rule and Forms are required by F.S. 627.4554 (the "Statute").

At the outset, DFS announced that this "informal" hearing would take comments from interested parties on the proposed Rule and the Forms. DFS also stated that it would hold the record open for 10 calendar days for interested parties to submit additional written comments. Six interested parties, including the ACLI and the Florida Insurance Council, provided comments that raised both global issues and technical drafting points. The global comments centered around:

  • The FINRA Exemption. Several persons questioned whether an insurer's FINRA compliant suitability forms and procedures could be deemed to satisfy the proposed Rule's requirements. DFS replied that FINRA's suitability requirements do not apply to all products subject to the Statute. DFS said it would consider this request but that it was hesitant to extend the FINRA exemption to sales of annuities not subject to FINRA regulation. In addition, clarification was sought as to whether the FINRA exemption also applied for replacements subject to FINRA regulation.
  • The Use of Supplemental Forms. If an insurer's existing forms meet the Forms requirements to a substantial degree, a question was raised whether the insurer could use its existing forms in conjunction with a supplemental form addressing the remaining requirements. DFS did not respond to this question.
  • Duplicative Filing and Approval Requirements. The proposed Rule allows an insurer to adapt the Forms for its use subject to certain conditions and the written approval of DFS. The proposed Rule also provides that DFS's approval of an adapted form does not preclude subsequent disapproval by the Florida Office of Insurance Regulation ("OIR"). Several comments addressed whether filing with and approval of both DFS and OIR were necessary, which would create additional regulatory burdens. Commenters also noted that dual regulation could lead to inconsistent results. DFS stated that this complexity is a function of the Statute, and DFS will consult with OIR to determine whether the filing and approval process can be consolidated or streamlined.
  • Forms Implementation Date. There was uncertainty as to when use of the Forms would be mandatory. DFS clarified that the Forms will not be mandatory until 60 days following the proposed Rule's adoption, but DFS encouraged earlier adoption by industry participants on a voluntary basis.

There were also a host of technical drafting comments concerning Form language. Specific areas of comments included:

  • Signature Requirements. The Forms currently require signatures on each page and are potentially confusing as to who must sign (e.g., applicant, joint applicant or owner signature blocks), given that the body of each Form asks at the outset for the identity of the annuitant or joint annuitant.
  • Medical Expenses. The Annuity Suitability Questionnaire form asks questions about medical expenses, which commenters said raised potential privacy and unfair discrimination concerns, were unclear, and could be problematic in assessing suitability. DFS noted that the questions served to focus the consumer on his or her future financial needs, which needed to be part of the suitability analysis.
  • Other Drafting Issues. Certain questions may be inapplicable to a given insurer's contract and therefore confusing (e.g., the Disclosure and Comparison of Annuity Contracts form asks for the "Annual Free Withdrawal Percentage Rate," while some carriers use a dollar based free withdrawal feature; Interest Rate Caps would apply only to indexed products). Other questions were not sufficiently clear and/or used undefined terms (e.g., the Disclosure and Comparison of Annuity Contracts form's question regarding "Asset Fees" was ambiguous and the "Limits and Exclusions for Bonuses that may be Payable" was undefined).

DFS encouraged the commenters and other interested parties to submit written suggestions for DFS's consideration within the 10 day comment period. DFS emphasized, however, that it was not seeking wholesale redrafting of the Forms.

Once DFS reviews the comments, DFS will determine whether modifications to the proposed Rule and/or Forms are needed. If DFS determines that no modifications are necessary, DFS will file the proposed Rule for formal adoption. If DFS does make changes, DFS will publish a formal Notice of Change, which will trigger a 21 day comment period on the revisions.