Suitability in annuity transactions.

(1) PURPOSE.—The purpose of this section is to require agents to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise so that the insurance needs and financial objectives of consumers are effectively addressed at the time of the transaction.

(2) SCOPE.—This section applies to any sale or recommendation of an annuity.

(3) DEFINITIONS.—As used in this section, the term:

(a) “Agent” means a person or entity required to be licensed under the laws of this state to sell, solicit, or negotiate insurance, including annuities. For purposes of this section, the term includes an insurer when no agent is involved.

(b) “Annuity” means an insurance product under state law which is individually solicited, whether classified as an individual or group annuity.

(c) “Cash compensation” means any discount, concession, fee, service fee, commission, sales charge, loan, override, or cash benefit received by an agent from an insurer or intermediary or directly from the consumer in connection with the recommendation or sale of an annuity.

(d) “Consumer profile information” means information that is reasonably appropriate to determine whether a recommendation addresses the consumer’s financial situation, insurance needs, and financial objectives, including, at a minimum, the following:

1. Age.

2. Annual income.

3. Financial situation and needs, including debts and other obligations.

4. Financial experience.

5. Insurance needs.

6. Financial objectives.

7. Intended use of the annuity.

8. Financial time horizon.

9. Existing assets or financial products, including investment, annuity, and insurance holdings.

10. Liquidity needs.

11. Liquid net worth.

12. Risk tolerance, including, but not limited to, willingness to accept nonguaranteed elements in the annuity.

13. Financial resources used to fund the annuity.

14. Tax status.

(e) “FINRA” means the Financial Industry Regulatory Authority or a succeeding agency.

(f) “Insurer” has the same meaning as provided in s. 624.03.

(g) “Intermediary” means an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer’s annuities by agents.

(h) “Material conflict of interest” means a financial interest of the agent in the sale of an annuity which a reasonable person would expect to influence the impartiality of a recommendation. The term does not include cash compensation or noncash compensation.

(i) “Noncash compensation” means any form of compensation that is not cash compensation, including, but not limited to, health insurance, office rent, office support, and retirement benefits.

(j) “Nonguaranteed elements” means the premiums; credited interest rates, including any bonus; benefits; values; dividends; noninterest-based credits; charges; or elements of formulas used to determine any of these, which are subject to company discretion and are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

(k) “Recommendation” means advice provided by an agent to an individual consumer which was intended to result or does result in a purchase, an exchange, or a replacement of an annuity in accordance with that advice. The term does not include general communication to the public, generalized customer services, assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.

(l) “Replacement” means a transaction in which a new annuity is to be purchased and it is known or should be known to the proposing agent, or to the proposing insurer whether or not an agent is involved, that by reason of such transaction an existing annuity or other insurance policy has been or is to be any of the following:

1. Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated;

2. Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value due to the use of nonforfeiture benefits or other policy values;

3. Amended so as to effect a reduction in benefits or the term for which coverage would otherwise remain in force or for which benefits would be paid;

4. Reissued with a reduction in cash value; or

5. Used in a financed purchase.

(m) “SEC” means the United States Securities and Exchange Commission.

(4) EXEMPTIONS.—Unless otherwise specifically included, this section does not apply to transactions involving:

(a) Direct-response solicitations where there is no recommendation based on information collected from the consumer pursuant to this section;

(b) Contracts used to fund:

1. An employee pension or welfare benefit plan that is covered by the federal Employee Retirement and Income Security Act;

2. A plan described by s. 401(a), s. 401(k), s. 403(b), s. 408(k), or s. 408(p) of the Internal Revenue Code, if established or maintained by an employer;

3. A government or church plan defined in s. 414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under s. 457 of the Internal Revenue Code; or

4. A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(c) Settlements or assumptions of liabilities associated with personal injury litigation or a dispute or claim-resolution process; or

(d) Formal prepaid funeral contracts.

(5) DUTIES OF INSURERS AND AGENTS.—

(a) An agent, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the financial interest of the agent or insurer ahead of the consumer’s interest. An agent has acted in the best interest of the consumer if the agent has satisfied the following obligations regarding care, disclosure, conflict of interest, and documentation:

1.a. The agent, in making a recommendation, shall exercise reasonable diligence, care, and skill to:

(I) Know the financial situation, insurance needs, and financial objectives of the customer.

(II) Understand the available options after making a reasonable inquiry into options available to the agent.

(III) Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objectives over the life of the product, as evaluated in light of the consumer profile information.

(IV) Communicate the reason or reasons for the recommendation.

b. The requirements of sub-subparagraph a. include:

(I) Making reasonable efforts to obtain consumer profile information from the consumer before the recommendation of an annuity.

(II) Requiring an agent to consider the types of products the agent is authorized and licensed to recommend or sell which address the consumer’s financial situation, insurance needs, and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the agent or other possible alternative products or strategies available in the market at the time of the recommendation. Agents shall be held to standards applicable to agents with similar authority and licensure.

(III) Having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features.

c. The requirements of this subsection do not create a fiduciary obligation or relationship and only create a regulatory obligation as provided in this section.

d. The consumer profile information; characteristics of the insurer; and product costs, rates, benefits, and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer’s financial situation, insurance needs, and financial objectives, but the level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.

e. The requirements under sub-subparagraph a. apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.

f. Sub-subparagraph a. does not require that the annuity with the lowest one-time occurrence compensation structure or multiple occurrence compensation structure shall necessarily be recommended.

g. Sub-subparagraph a. does not require the agent to have ongoing monitoring obligations under the care obligation, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment, advising, or financial planning agreement between the consumer and the agent.

h. In the case of an exchange or replacement of an annuity, the agent shall consider the whole transaction, which includes taking into consideration whether:

(I) The consumer will incur a surrender charge; be subject to the commencement of a new surrender period; lose existing benefits, such as death, living, or other contractual benefits; or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements.

(II) The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product.

(III) The consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.

i. This section does not require an agent to obtain any license other than an agent license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including, but not limited to, any securities license, in order to fulfill the duties and obligations contained in this section; provided, the agent does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.

2.a. Before the recommendation or sale of an annuity, the agent shall prominently disclose to the consumer, on a form substantially similar to that posted on the office website as Appendix A, related to an insurance agent disclosure for annuities:

(I) A description of the scope and terms of the relationship with the consumer and the role of the agent in the transaction.

(II) An affirmative statement on whether the agent is licensed and authorized to sell the following products:

(A) Fixed annuities.

(B) Fixed indexed annuities.

(C) Variable annuities.

(D) Life insurance.

(E) Mutual funds.

(F) Stocks and bonds.

(G) Certificates of deposit.

(III) An affirmative statement describing the insurers for which the agent is authorized, contracted, or appointed, or otherwise able to sell insurance products, using the following descriptions:

(A) From one insurer;

(B) From two or more insurers; or

(C) From two or more insurers, although primarily contracted with one insurer.

(IV) A description of the sources and types of cash compensation and noncash compensation to be received by the agent, including whether the agent is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other agent, or by fee as a result of a contract for advice or consulting services.

(V) A notice of the consumer’s right to request additional information regarding cash compensation described in sub-subparagraph b.

b. Upon request of the consumer or the consumer’s designated representative, the agent shall disclose:

(I) A reasonable estimate of the amount of cash compensation to be received by the agent, which may be stated as a range of amounts or percentages.

(II) Whether the cash compensation is a one-time or multiple occurrence amount; and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.

c. Before or at the time of the recommendation or sale of an annuity, the agent shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge; potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity; mortality and expense fees; any annual fees; investment advisory fees; potential charges for and features of riders or other options of the annuity; limitations on interest returns; potential changes in nonguaranteed elements of the annuity; insurance and investment components; and market risk.

3. An agent shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

4. An agent shall at the time of the recommendation or sale:

a. Make a written record of any recommendation and the basis for the recommendation, subject to this section.

b. Obtain a consumer-signed statement on a form substantially similar to that posted on the office website as Appendix B, related to a consumer’s refusal to provide information, documenting:

(I) A customer’s refusal to provide the consumer profile information, if any.

(II) A customer’s understanding of the ramifications of not providing his or her consumer profile information or providing insufficient consumer profile information.

c. Obtain a consumer-signed statement on a form substantially similar to that posted on the office website as Appendix C, related to a consumer’s decision to purchase an annuity not based on a recommendation, acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the agent’s recommendation.

5. Any requirement applicable to an agent under this subsection applies to every agent who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the agent has had any direct contact with the consumer. Activities such as providing or delivering marketing or education materials, product wholesaling or other back office product support, and general supervision of an agent do not, in and of themselves, constitute material control or influence.

(b)1. Except as provided under subparagraph 2., an agent does not have an obligation to a consumer related to an annuity transaction under subparagraph (a)1. if:

a. A recommendation has not been made;

b. A recommendation was made and is later found to have been based on materially inaccurate information provided by the consumer;

c. A consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended; or

d. A consumer decides to enter into an annuity transaction that is not based on a recommendation of the agent.

2. An insurer’s issuance of an annuity subject to subparagraph 1. must be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.

(c)1. Except as permitted under paragraph (b), an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer’s financial situation, insurance needs, and financial objectives based on the consumer’s consumer profile information.

2. An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer’s and its agent’s compliance with this section, including, but not limited to, the following:

a. The insurer shall establish and maintain reasonable procedures to inform its agents of the requirements of this section and incorporating those requirements into relevant agent training manuals.

b. The insurer shall establish and maintain standards for agent product training and shall establish and maintain reasonable procedures to require its agents to comply with the requirements of subsection (6).

c. The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its agents.

d. The insurer shall establish and maintain procedures for the review of each recommendation before issuance of an annuity which are designed to ensure that there is a reasonable basis to determine the recommended annuity would effectively address the particular consumer’s financial situation, insurance needs, and financial objectives. Such review procedures may use a screening system for identifying selected transactions for additional review and may be accomplished electronically or through other means, including, but not limited to, physical review. Such electronic or other system may be designed to require additional review only of those transactions identified for additional review using established selection criteria.

e. The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with paragraphs (a), (b), (d), and (e). This may include, but is not limited to, confirmation of consumer profile information, systematic customer surveys, agent and consumer interviews, confirmation letters, agent statements or attestations, and internal monitoring programs. This sub-subparagraph does not prevent an insurer from using sampling procedures or from confirming the consumer profile information after the issuance or delivery of the annuity.

f. The insurer shall establish and maintain reasonable procedures to assess, prior to or upon issuance or delivery of an annuity, whether an agent has provided to the consumer the information required to be provided under this subsection.

g. The insurer shall establish and maintain reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information.

h. The insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this sub-subparagraph are not intended to prohibit the receipt of health insurance, office rents, office support, retirement benefits, or other employee benefits by employees, as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time.

i. The insurer shall annually provide a written report to senior managers, including the senior manager who is responsible for audit functions, which details a review, along with appropriate testing, which is reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

3. An insurer is not required to include in its supervision system:

a. Agent recommendations to consumers of products other than the annuities offered by the insurer; or

b. Consideration of or comparison to options available to the agent or compensation relating to those options other than annuities or other products offered by the insurer.

4. An insurer may contract for performance of a function, including maintenance of procedures, required under subparagraph 1.

a. An insurer’s supervision system under this subsection shall include supervision of contractual performance under this subsection, which includes, but is not limited to:

(I) Monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed; and

(II) Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is being properly performed.

b. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to subsection (8) regardless of whether the insurer contracts for performance of a function and regardless of the insurer’s compliance with sub-subparagraph a.

(d) Neither an agent nor an insurer shall dissuade, or attempt to dissuade, a consumer from:

1. Truthfully responding to an insurer’s request for confirmation of consumer profile information;

2. Filing a complaint; or

3. Cooperating with the investigation of a complaint.

(e)1. Recommendations and sales made in compliance with comparable standards shall satisfy the requirements of this section. This applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if such standard would not otherwise apply to the product or recommendation at issue. However, this paragraph does not limit the ability of the office or the department to investigate and enforce this section.

2. Subparagraph 1. does not limit the insurer’s obligation to comply with subparagraph (c)1., although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

3. For subparagraph 1. to apply, an insurer must:

a. Monitor relevant conduct of the financial professional seeking to rely on subparagraph 1. or the entity responsible for supervising the financial professional, such as the financial professional’s broker-dealer or an investment adviser registered under federal or state securities law, using information collected in the normal course of an insurer’s business; and

b. Provide to the entity responsible for supervising the financial professional seeking to rely on subparagraph 1., such as the financial professional’s broker-dealer or an investment adviser registered under federal or state securities laws, information and reports that are reasonably appropriate to assist such entity in maintaining its supervision system.

4. For purposes of this paragraph, the term:

a. “Comparable standards” means:

(I) With respect to broker-dealers and registered representatives of broker-dealers, applicable SEC and FINRA rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including, but not limited to, Regulation Best Interest, 17 C.F.R. s. 240.15l–1, and any amendments or successor regulations thereto;

(II) With respect to investment advisers registered under federal or state securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on such investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940 or applicable state securities laws, including, but not limited to, Form ADV and interpretations; and

(III) With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to such status under the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code and any amendments or successor statutes thereto.

b. “Financial professional” means an agent that is regulated and acting as:

(I) A broker-dealer registered under federal or state securities laws or a registered representative of a broker-dealer;

(II) An investment adviser registered under federal or state securities laws or an investment adviser representative associated with the federal or state registered investment adviser; or

(III) A plan fiduciary under s. 3(21) of the Employee Retirement Income Security Act of 1974 or fiduciary under s. 4975(e)(3) of the Internal Revenue Code or any amendments or successor statutes thereto.

(6) AGENT TRAINING.—

(a) An agent shall not solicit the sale of an annuity product unless the agent has adequate knowledge of the product to recommend the annuity and the agent is in compliance with the insurer’s standards for product training. An agent may rely on insurer-provided, product-specific training standards and materials to comply with this subsection.

(b)1.a. An agent who engages in the sale of annuity products shall complete a one-time, 4-hour training course. This requirement is not part of an agent’s continuing education requirement in s. 626.2815; however, if a course provider submits and receives approval from the department, the course is eligible for continuing education credit pursuant to s. 626.2815.

b. Agents who hold a life insurance line of authority on January 1, 2024, and who desire to sell annuities shall complete the requirements of this subsection by July 1, 2024. Individuals who obtain a life insurance line of authority after January 1, 2024, may not engage in the sale of annuities until the annuity training course required under this subsection has been completed.

2. The minimum length of the training required under this subsection is 4 hours.

3. The training required under this subsection shall include information on the following topics:

a. The types of annuities and various classifications of annuities.

b. Identification of the parties to an annuity.

c. How product-specific annuity contract features affect consumers.

d. The application of income taxation of qualified and nonqualified annuities.

e. The primary uses of annuities.

f. The appropriate standard of conduct, sales practices, replacement, and disclosure requirements.

4. Providers of courses intended to comply with this subsection shall cover all topics listed in the prescribed outline and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer’s products. Additional topics may be offered in conjunction with and in addition to the required outline.

5. An agent who has completed an annuity training course before January 1, 2024, shall, by July 1, 2024, complete either:

a. A new 4-hour training course; or

b. An additional 1-hour training course on appropriate sales practices, replacement, and disclosure requirements under this section.

6. Annuity training courses may be conducted and completed by classroom or self-study methods.

7. Providers of annuity training shall issue certificates of completion.

8. The satisfaction of the training requirements of another state that are substantially similar to the provisions of this subsection shall be deemed to satisfy the training requirements of this subsection in this state.

9. The satisfaction of the training requirements of any course or courses with components substantially similar to the provisions of this subsection shall be deemed to satisfy the training requirements of this subsection in this state.

10. An insurer shall verify that an agent has completed the annuity training course required under this subsection before allowing the agent to sell an annuity product for that insurer.

(7) RECORDKEEPING.—

(a) Insurers and agents must maintain or be able to make available to the office or department records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for 5 years after the insurance transaction is completed by the insurer. An insurer may maintain the documentation on behalf of its agent.

(b) Records required to be maintained under this subsection may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.

(8) COMPLIANCE MITIGATION; PENALTIES.—

(a) An insurer is responsible for compliance with this section. If a violation occurs because of the action or inaction of the insurer or its agent which results in harm to a consumer, the office may order the insurer to take reasonably appropriate corrective action for the consumer and may impose appropriate penalties and sanctions.

(b) The department may order:

1. An agent to take reasonably appropriate corrective action for a consumer harmed by a violation of this section by the agent, including monetary restitution of penalties or fees incurred by the consumer, and impose appropriate penalties and sanctions.

2. A managing general agency or insurance agency that employs or contracts with an agent to sell or solicit the sale of annuities to consumers to take reasonably appropriate corrective action for a consumer harmed by a violation of this section by the agent.

(c) In addition to any other penalty authorized under chapter 626, the department shall order an insurance agent to pay restitution to a consumer who has been deprived of money by the agent’s misappropriation, conversion, or unlawful withholding of moneys belonging to the consumer in the course of a transaction involving annuities. The amount of restitution required to be paid may not exceed the amount misappropriated, converted, or unlawfully withheld. This paragraph does not limit or restrict a person’s right to seek other remedies as provided by law.

(d) Any applicable penalty under the Florida Insurance Code for a violation of this section shall be reduced or eliminated according to a schedule adopted by the office or the department, as appropriate, if corrective action for the consumer was taken promptly after a violation was discovered.

(e) A violation of this section does not create or imply a private cause of action.

(9) PROHIBITED CHARGES.—An annuity contract issued to a senior consumer age 65 or older may not contain a surrender or deferred sales charge for a withdrawal of money from an annuity exceeding 10 percent of the amount withdrawn. The charge shall be reduced so that no surrender or deferred sales charge exists after the end of the 10th policy year or 10 years after the date of each premium payment if multiple premiums are paid, whichever is later. This subsection does not apply to annuities purchased by an accredited investor, as defined in Regulation D as adopted by the United States Securities and Exchange Commission, or to those annuities specified in paragraph (4)(b).

(10) RULES.—The department and the commission may adopt rules to administer this section. The department may adopt by rule the forms prescribed in the National Association of Insurance Commissioners Suitability in Annuity Transactions Model Regulation Appendix A - Insurance Agent (Producer) Disclosure for Annuities, Appendix B - Consumer Refusal to Provide Information, and Appendix C - Consumer Decision to Purchase an Annuity Not Based on a Recommendation.