On June 30, 2008, the Florida legislature amended Section 627.4554 of the Insurance Code to impose more stringent suitability and replacement requirements on the sale of annuities to senior consumers (defined as persons aged 65 or older). Among other things, the amended statute requires that in recommending the purchase or exchange of annuity to a senior, the agent (or the insurer if no agent is involved) must have an objectively reasonable basis for believing that the recommendation is suitable based on the facts disclosed by the senior. The statute identifies specific types of information that the agent (or the insurer if no agent is involved) must make reasonable efforts to obtain and then goes on to state that the information shall be collected on a form adopted by rule by the Florida Department of Financial Services. For replacement or exchange transactions, the amended statute further requires that the agent provide the senior with certain information concerning differences between each existing and proposed annuity contract, and also states that such information shall be presented on a form adopted by rule by the Department.
On January 16, the Department published a "preliminary text of a proposed rule," which included the statutorily required suitability and replacement forms. As proposed, these forms are more burdensome to insurers and agents than the already stringent requirements of Section 627.4554. The statute identifies 10 specific categories of suitability information to be gathered as well as a catch-all category of "Such other information used or considered to be relevant by the insurance agent or insurer in making [the] recommendation . . . ." While the proposed five page "Annuity Suitability Questionnaire" form contains questions tracking the specific statutory requirements, it also extends beyond those requirements. For example, the statute requires that the agent attempt to determine the applicant's annual income, while the Questionnaire asks for the annuitant's, joint annuitant's, and "household's annual income as well as the source of that income. More problematic, the Suitability Questionnaire form requires a narrative of the "advantages of purchasing the proposed annuity," the "disadvantages of purchasing the proposed annuity," and "the basis for my recommendation to purchase the proposed annuity or to replace or exchange your existing annuity (ies)." The statute's suitability requirements do not require these disclosures; rather, they are required by the statute's replacement provisions. Thus, the proposed Suitability Questionnaire, which applies to all annuity sales, would extend replacement disclosure requirements to non-replacement transactions.
The proposed four page Disclosure and Comparison of Annuity Contracts form also appears to improperly exceed the statute's disclosure requirements. The Disclosure and Comparison form requires a side-by-side comparison of a litany of specific categories of information relating to the existing and replacement contract. However, some of the required comparative information called for by the form are beyond the scope of the statute, ambiguous or otherwise problematic (for example, requiring comparative information as to the amount and source of the initial deposit, administrative fees or margins, and an open-ended "Other" comparison line).
The Department will be holding a "Workshop" at its offices in Tallahassee, Florida, on February 2, 2009, at which time regulators and interested parties will have the opportunity to discuss the proposed rule and forms. We expect that insurers and agents will have numerous comments on the proposed forms and their impact on the sales process.