FL Proposes Surrender-Charge Period Limit for Annuities
January 9, 2010 by Heather Strickland
Florida officials and insurance professionals have been butting heads over the “Safeguard Our Seniors Act,” a bill that limits the surrender-charge period for certain annuities, and caps the surrender charges at 5 percent of the annuity’s premiums.
The bill, S.B. 1372, would limit to five years the surrender-charge period for an annuity sold to consumers ages 65 and older. Additionally, the bill would extend to 60 days the “free-look” period for seniors buying annuities, up from 14 days. During the free-look period, consumers can terminate their contract without penalty.
Sen. Michael Bennett, R-Bradenton, FL, introduced S.B. 1372. A House version of the bill, H.B. 141, was introduced by Rep. Keith Fitzgerald, D-Sarasota, FL. Alex Sink, Florida’s Chief Financial Officer, has been particularly supportive of the legislation.
“The need for the ‘Safeguard our Seniors’ legislation became prevalent by the increasing number of complaints the Department of Financial Services has received from seniors around the state who were lured into purchasing an inappropriate financial product by unscrupulous agents,” said Jayme O’Rourke, spokesperson for Sink. “CFO Sink has heard from hundreds of seniors around the state who, lured by a free lunch or other ploy, were convinced to liquidate their annuities, CDs, stocks, and savings accounts to fund new annuities, only to discover that they had been robbed.”
O’Rourke added that the number of senior annuity investigations opened by the Department of Financial Services has increased 299 percent in the last four fiscal years.
Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), sees several problems with the legislation.
“The product limitations incorporated in this bill will severely limit the product’s competitiveness and availability to consumers,” she said. “Florida is a large state with many individuals over the age of 65 who deserve the choice and availability of competitive annuity products with a wide array of features and benefits.”
Sheryl Moore, president and CEO of the annuity market research group AnnuitySpecs.com, is also outspoken against the bill.
“Twenty percent of the country’s seniors live in [Florida], and annuities are the one product that can protect an income that a person can outlive,” she said. “Limiting indexed annuity surrender charges to five years with five percent penalties would make it so that most companies wouldn’t offer annuities, simply because it isn’t cost effective, and that would limit seniors’ access to this valuable insurance product.”
The bill also re-classifies cases of “churning” or “twisting.” Churning takes place when an agent convinces a consumer to replace an existing product for the sole purpose of generating commission revenue. Under the terms of the legislation, churning would be treated as a felony; currently, it is a misdemeanor. Agents who participate in churning will face an administrative fine of up to $5,000 for “nonwillful violations” or a fine of up to $40,000 for “willful violations.” However, criminal penalties will be enforced only if the churning involves fraudulent conduct.
Other provisions include requiring the revocation of the license of any agent who has fraudulently sold an insurance or annuity product to a senior, and requiring insurers to provide information to consumers about the free-look period. If an agent’s license has been revoked for defrauding a senior client, the license may never be reinstated. The same penalty applies if a producer’s license is revoked twice for non-senior-related offenses.
O’Rourke explained the reasoning behind such harsher penalties for fraud against senior clients.
“Seniors – many of whom are on limited fixed incomes — need more protection afforded by the law than younger Floridians, who have more opportunity to recoup losses that they might incur through agent misconduct,” she said.
Moore said that she understands where Sink and the legislature are coming from, and knows that they have seniors’ best interests at heart. However, she thinks there are much better ways to deal with abusive agents. She suggested that Florida adopt standard nonforfeiture laws, or create rigorous training requirements.
“There are a lot of different things that are market-conduct and suitability focused that could help curb sales abuses, but changing the product isn’t going to change anything,” she said. “There’s a couple of bad apples in every barrel, and unfortunately those bad apples will find a way, regardless of the product used.”
In fact, within the last year, Florida has taken some steps to prevent agent misconduct. Last June, the “John and Patricia Seibel Act” was signed into law. The legislation, named for an elderly couple who fell victim to an unscrupulous agent, requires all Florida agents to take a Senior Suitability Course before they can sell annuities to seniors. But, lawmakers feel that the law wasn’t enough.
“Last year’s bill was only a step in the right direction,” O’Rourke said. “CFO Sink has done hearings throughout the state since last session and heard from state attorneys, insurance agents, insurance companies, and, most importantly, from victims of agent fraud. The proposals in the current bill are based on what [she] learned. The suitability provisions [in the Seibel Act] will increase protections for consumers, but rogue agents will still commit twisting and churning, and the felony penalty must apply to them like it does to a broker-dealer committing similar violations.”
O’Brien, however, said that NAFA believes that the Seibel Act already provides the consumer protection lawmakers are looking for with the new bill.
“Accordingly, it would appear that S.B. 1372 is redundant and unnecessary,” she said.
Because of the overwhelming support Sink has given to the legislation, industry experts are nearly certain that S.B. 1372 will pass, at least in some form. But O’Brien said that NAFA is hoping to see some changes. For example, they hope that the 60 day free-look period can be shortened to 30 days, which is similar to some practices already in place.
NAFA also would like to see the government “remove all surrender charges, surrender period, and commission limitations, because existing suitability and disclosure questionnaires required by the state’s new suitability requirements ensure consumers are aware of and consider surrender periods and charges when purchasing,” O’Brien said.
For agents concerned about the bill, Moore suggests a proactive approach.
“I suggest all agents doing business in Florida write or call Alex Sink’s office and [state insurance commissioner] Kevin McCarty’s office,” she said. “Let them know that they need choices for their clients when it comes to annuities and this prohibitive legislation will only hurt the residents of Florida.”
But despite the strong sentiments coming from many insurance professionals, O’Rourke believes the bill will pass. The legislation has bipartisan support, and was passed unanimously in the Senate Banking and Insurance Committee. Plus, Sink has no intention of slowing her efforts any time soon.
“CFO Sink believes that it is extremely important that we offer better financial protections for our growing population of senior residents and tougher consequences for those who try to defraud them,” O’Rourke said.
Yet although the bill may protect seniors in one sense, others say it may also do a lot of harm. Moore is concerned that, if the bill passes, carriers won’t offer annuities in Florida, and seniors will lose access to a valuable financial product because of a few instances of abuse.
“This law is like outlawing hammers because there is a guy who goes around murdering people with them,” she said. “Hammers have been used for a very long time. I can’t imagine building a house without one, but does that mean that they should be outlawed because somebody misused it? I don’t think so.
“Unfortunately, some regulators are painting our industry with a very broad stroke and saying everyone in the industry must be bad, but that’s just not the case.”
Heather Strickland is the regional editor of the Agent’s Sales Journal. She can be reached at HStrickland@AgentsSalesJournal.com, or 800-933-9449 ext. 225.
Florida officials and insurance professionals have been butting heads over the “Safeguard Our Seniors Act,” a bill that limits the surrender-charge period for certain annuities, and caps the surrender charges at 5 percent of the annuity’s premiums.
The bill, S.B. 1372, would limit to five years the surrender-charge period for an annuity sold to consumers ages 65 and older. Additionally, the bill would extend to 60 days the “free-look” period for seniors buying annuities, up from 14 days. During the free-look period, consumers can terminate their contract without penalty.
Sen. Michael Bennett, R-Bradenton, FL, introduced S.B. 1372. A House version of the bill, H.B. 141, was introduced by Rep. Keith Fitzgerald, D-Sarasota, FL. Alex Sink, Florida’s Chief Financial Officer, has been particularly supportive of the legislation.
“The need for the ‘Safeguard our Seniors’ legislation became prevalent by the increasing number of complaints the Department of Financial Services has received from seniors around the state who were lured into purchasing an inappropriate financial product by unscrupulous agents,” said Jayme O’Rourke, spokesperson for Sink. “CFO Sink has heard from hundreds of seniors around the state who, lured by a free lunch or other ploy, were convinced to liquidate their annuities, CDs, stocks, and savings accounts to fund new annuities, only to discover that they had been robbed.”
O’Rourke added that the number of senior annuity investigations opened by the Department of Financial Services has increased 299 percent in the last four fiscal years.
Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), sees several problems with the legislation.
“The product limitations incorporated in this bill will severely limit the product’s competitiveness and availability to consumers,” she said. “Florida is a large state with many individuals over the age of 65 who deserve the choice and availability of competitive annuity products with a wide array of features and benefits.”
Sheryl Moore, president and CEO of the annuity market research group AnnuitySpecs.com, is also outspoken against the bill.
“Twenty percent of the country’s seniors live in [Florida], and annuities are the one product that can protect an income that a person can outlive,” she said. “Limiting indexed annuity surrender charges to five years with five percent penalties would make it so that most companies wouldn’t offer annuities, simply because it isn’t cost effective, and that would limit seniors’ access to this valuable insurance product.”
The bill also re-classifies cases of “churning” or “twisting.” Churning takes place when an agent convinces a consumer to replace an existing product for the sole purpose of generating commission revenue. Under the terms of the legislation, churning would be treated as a felony; currently, it is a misdemeanor. Agents who participate in churning will face an administrative fine of up to $5,000 for “nonwillful violations” or a fine of up to $40,000 for “willful violations.” However, criminal penalties will be enforced only if the churning involves fraudulent conduct.
Other provisions include requiring the revocation of the license of any agent who has fraudulently sold an insurance or annuity product to a senior, and requiring insurers to provide information to consumers about the free-look period. If an agent’s license has been revoked for defrauding a senior client, the license may never be reinstated. The same penalty applies if a producer’s license is revoked twice for non-senior-related offenses.
O’Rourke explained the reasoning behind such harsher penalties for fraud against senior clients.
“Seniors – many of whom are on limited fixed incomes — need more protection afforded by the law than younger Floridians, who have more opportunity to recoup losses that they might incur through agent misconduct,” she said.
Moore said that she understands where Sink and the legislature are coming from, and knows that they have seniors’ best interests at heart. However, she thinks there are much better ways to deal with abusive agents. She suggested that Florida adopt standard nonforfeiture laws, or create rigorous training requirements.
“There are a lot of different things that are market-conduct and suitability focused that could help curb sales abuses, but changing the product isn’t going to change anything,” she said. “There’s a couple of bad apples in every barrel, and unfortunately those bad apples will find a way, regardless of the product used.”
In fact, within the last year, Florida has taken some steps to prevent agent misconduct. Last June, the “John and Patricia Seibel Act” was signed into law. The legislation, named for an elderly couple who fell victim to an unscrupulous agent, requires all Florida agents to take a Senior Suitability Course before they can sell annuities to seniors. But, lawmakers feel that the law wasn’t enough.
“Last year’s bill was only a step in the right direction,” O’Rourke said. “CFO Sink has done hearings throughout the state since last session and heard from state attorneys, insurance agents, insurance companies, and, most importantly, from victims of agent fraud. The proposals in the current bill are based on what [she] learned. The suitability provisions [in the Seibel Act] will increase protections for consumers, but rogue agents will still commit twisting and churning, and the felony penalty must apply to them like it does to a broker-dealer committing similar violations.”
O’Brien, however, said that NAFA believes that the Seibel Act already provides the consumer protection lawmakers are looking for with the new bill.
“Accordingly, it would appear that S.B. 1372 is redundant and unnecessary,” she said.
Because of the overwhelming support Sink has given to the legislation, industry experts are nearly certain that S.B. 1372 will pass, at least in some form. But O’Brien said that NAFA is hoping to see some changes. For example, they hope that the 60 day free-look period can be shortened to 30 days, which is similar to some practices already in place.
NAFA also would like to see the government “remove all surrender charges, surrender period, and commission limitations, because existing suitability and disclosure questionnaires required by the state’s new suitability requirements ensure consumers are aware of and consider surrender periods and charges when purchasing,” O’Brien said.
For agents concerned about the bill, Moore suggests a proactive approach.
“I suggest all agents doing business in Florida write or call Alex Sink’s office and [state insurance commissioner] Kevin McCarty’s office,” she said. “Let them know that they need choices for their clients when it comes to annuities and this prohibitive legislation will only hurt the residents of Florida.”
But despite the strong sentiments coming from many insurance professionals, O’Rourke believes the bill will pass. The legislation has bipartisan support, and was passed unanimously in the Senate Banking and Insurance Committee. Plus, Sink has no intention of slowing her efforts any time soon.
“CFO Sink believes that it is extremely important that we offer better financial protections for our growing population of senior residents and tougher consequences for those who try to defraud them,” O’Rourke said.
Yet although the bill may protect seniors in one sense, others say it may also do a lot of harm. Moore is concerned that, if the bill passes, carriers won’t offer annuities in Florida, and seniors will lose access to a valuable financial product because of a few instances of abuse.
“This law is like outlawing hammers because there is a guy who goes around murdering people with them,” she said. “Hammers have been used for a very long time. I can’t imagine building a house without one, but does that mean that they should be outlawed because somebody misused it? I don’t think so.
“Unfortunately, some regulators are painting our industry with a very broad stroke and saying everyone in the industry must be bad, but that’s just not the case.”
Heather Strickland is the regional editor of the Agent’s Sales Journal. She can be reached at HStrickland@AgentsSalesJournal.com, or 800-933-9449 ext. 225.
