The proposed rule chapter sets forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices.

 

DEPARTMENT OF FINANCIAL SERVICES
Division of Insurance Agents and Agency Services

RULE NO: RULE TITLE
69B-240.001: Military Sales Practices
PURPOSE AND EFFECT: The proposed rule chapter sets forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices.
SUMMARY: The Florida Legislature enacted Laws of Florida, Ch. 2007-199, s. 10, which created Section 626.9611(2), Florida Statutes. That statute requires the Department to adopt rules to protect members of the United States Armed Forces from dishonest or predatory insurance sales practices. The rules are to be based on NAIC model rules.
SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 624.308(1), 626.9541(1), 626.9611(2) FS.
LAW IMPLEMENTED: 626.307(1), 626.951, 626.9521, 626.9541(1), 626.9611 FS.
IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW:
DATE AND TIME: Thursday, October 25, 2007, 9:00 a.m.
PLACE: Room 116, Larson Building, 200 East Gaines Street, Tallahassee, Florida
Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 5 days before the workshop/meeting by contacting: Nancy Rowell, [phone] If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Nancy Rowell, Director of Agent and Agency Services, Division of Insurance Agent and Agency Services, Department of Financial Services, 200 East Gaines Street, Tallahassee, Florida 32399-0319, phone [phone]

THE FULL TEXT OF THE PROPOSED RULE IS:

 

69B-240.001 Military Sales Practices.

(1) The purpose of this rule is to set forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive, or unfair.

(2) Scope – This rule shall apply only to the solicitation or sale of any life insurance or annuity product by an insurance producer to an active duty service member of the United States Armed Forces.

(3) Exemptions – This rule shall not apply to solicitations or sales involving:

(a) Credit insurance;

(b) Group life insurance or group annuities where there is no in-person, face-to-face solicitation of individuals by an insurance producer or where the contract or certificate does not include a side fund;

(c) Individual stand-alone health policies, including disability income policies;

(d) Contracts offered by Servicemembers’ Group Life Insurance (SGLI) or Veterans’ Group Life Insurance (VGLI), as authorized by 38 U.S.C. Section 1965 et seq., which are hereby incorporated by reference;

(e) Life insurance contracts offered through or by a non-profit military association, qualifying under Section 501 (c) (23) of the Internal Revenue Code (IRC), and which are not underwritten by an insurer; or

(f) Contracts used to fund:

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

2. A plan described by Sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the IRC, which are hereby incorporated by reference, if established or maintained by an employer;

3. A government or church plan defined in Section 414 of the IRC, which is hereby incorporated by reference, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under Section 457 of the IRC, which is hereby incorporated by reference;

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

5. Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

6. Prearranged funeral contracts.

(g) Nothing herein shall be construed to abrogate the ability of nonprofit organizations (and/or other organizations) to educate members of the United States Armed Forces in accordance with Department of Defense (DoD) Instruction 1344.07 – Personal Commercial Solicitation on DoD Installations, which is hereby incorporated by reference.

(4) Definitions

(a) “Active Duty” means full-time duty in the active military service of the United States and includes members of the reserve component (National Guard and Reserve) while serving under published orders for active duty or full-time training or in a drill status in the National Guard or United States Armed Forces Reserve.

(b) “Department of Defense (DoD) Personnel” means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the Department of Defense.

(c) “General Advertisement” means an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance producer.

(d) “Insurer” means an insurance company conducting activities requiring to be licensed under the laws of this state to provide life insurance products, including annuities.

(e) “Insurance producer” means a person conducting activities required to be licensed under the laws of this state to sell, solicit, or negotiate life insurance, including annuities.

(f) “Life Insurance” means insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income and unless otherwise specifically excluded, includes individually issued annuities.

(g) “Military Installation” means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.

(h) “MyPay” is a Defense Finance and Accounting Service (DFAS) web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms.

(i) “Service Member” means any active duty officer (commissioned and warrant) or enlisted member of the United States Armed Forces.

(j) “Side Fund” means a fund or reserve that is part of or otherwise attached to a life insurance policy (excluding individually issued annuities) by rider, endorsement, or other mechanism which accumulates premium or deposits with interest or by other means. The term does not include:

1. Accumulated value or cash value or secondary guarantees provided by a universal life policy;

2. Cash values provided by a whole life policy which are subject to standard nonforfeiture law for life insurance; or

3. A premium deposit fund which:

a. Contains only premiums paid in advance which accumulate at interest;

b. Imposes no penalty for withdrawal;

c. Does not permit funding beyond future required premiums;

d. Is not marketed or intended as an investment; and

e. Does not carry a commission, either paid or calculated.

(k) “Specific Appointment” means a prearranged appointment agreed upon by both parties and definite as to place and time.

(l) “United States Armed Forces” means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

(5) The following acts or practices when committed on a military installation by an insurance producer with respect to the in-person, face-to-face solicitation of life insurance are declared to be unfair or deceptive acts or practices by Section 626.9541 or 626.9551, F.S.:

(a) Soliciting the purchase of any life insurance product “door to door” or without first establishing a specific appointment for each meeting with the prospective purchaser.

(b) Soliciting service members in a group or “mass” audience or in a “captive” audience where attendance is not voluntary.

(c) Making appointments with or soliciting service members during their normally scheduled duty hours.

(d) Making appointments with or soliciting service members in barracks, day rooms, unit areas, or transient personnel housing or other areas where the installation commander has prohibited solicitation.

(e) Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander’s designee.

(f) Posting bulletins, notices, or advertisements, which have not been authorized by the installation commander.

(g) Failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a DD Form 2885, which is hereby incorporated by reference.

(h) Accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer’s files a completed copy of any required form which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives, or rules of the DoD or any branch of the Armed Forces.

(i) Using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation with respect to the solicitation or sale of life insurance to service members.

(j) Participating or using another insurance producer to participate in any United States Armed Forces sponsored education or orientation program.

(6) The following acts or practices by an insurance producer constitute corrupt practices, improper influences or inducements and are declared to be unfair or deceptive acts or practices prohibited by Section 626.9541, F.S. or 626.9551, F.S., regardless of the location where committed:

(a) Submitting, processing, or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member’s pay to a third party for the purchase of life insurance. The foregoing includes, but is not limited to, using or assisting in using a service member's “MyPay” account or other similar internet or electronic medium for such purposes. This subsection does not prohibit assisting a service member by providing insurer or premium information necessary to complete any allotment form.

(b) Receiving funds from a service member for the payment of premium from a depository institution with which the service member has no formal banking relationship. For purposes of this section, a formal banking relationship is established when the depository institution:

1. Provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. § 4301 et seq., which are hereby incorporated by reference, and the regulations promulgated thereunder, which are hereby incorporated by reference; and

2. Permits the service member to make deposits and withdrawals unrelated to the payment or processing of insurance premiums.

(c) Employing any device or method or entering into any agreement whereby funds received from a service member by allotment for the payment of insurance premiums are identified on the service member’s Leave and Earnings Statement or equivalent or successor form as “Savings” or “Checking” and where the service member has no formal banking relationship as defined in paragraph (6)(b).

(d) Entering into any agreement with a depository institution for the purpose of receiving funds from a service member whereby the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship.

(e) Using DoD personnel, directly or indirectly, as a representative or agent in any official or unofficial capacity with or without compensation with respect to the solicitation or sale of life insurance to service members, or to the family members of such personnel.

(f) Offering or giving anything of value, directly or indirectly, to DoD personnel to procure their assistance in encouraging, assisting, or facilitating the solicitation or sale of life insurance to another service member.

(g) Offering or giving anything of value to a service member for his or her attendance to any event where an application for life insurance is solicited.

(h) Advising a service member to change his or her income tax withholding or state of legal residence for the sole purpose of increasing disposable income to purchase life insurance.

(i)1. Making any representation, or using any device, title, descriptive name, or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance producer, or product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity. Examples of prohibited insurance producer titles include, but are not limited to, “Battalion Insurance Counselor,” “Unit Insurance Advisor,” “Servicemen’s Group Life Insurance Conversion Consultant,” or “Veteran’s Benefits Counselor.”

2. Nothing herein shall be construed to prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning. Such designations include, but are not limited to, Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Master of Science In Financial Services (MSFS), or Masters of Science Financial Planning (MS).

(j) Soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that either the insurer, insurance producer, or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government, or the United States Armed Forces.

(k) Using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid.

(l) Excluding individually issued annuities, misrepresenting the mortality costs of a life insurance product, including stating or implying that the product “costs nothing” or is “free.”

(m) Making any representation regarding the availability, suitability, amount, cost, exclusions, or limitations to coverage provided to a service member or dependents by SGLI or VGLI, which is false, misleading, or deceptive.

(n) Making any representation regarding conversion requirements, including the costs of coverage, or exclusions or limitations to coverage of SGLI or VGLI to private insurers which is false, misleading, or deceptive.

(o) Suggesting, recommending, or encouraging a service member to cancel or terminate his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member’s separation from the United States Armed Forces.

(p) Deploying, using, or contracting for any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance producer, if that is the case, for the purpose of soliciting the purchase of life insurance.

(q) Failing to disclose that a solicitation for the sale of life insurance, if that is the case, will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser.

(r) Failing to clearly and conspicuously disclose the fact that the product being sold is life insurance or an annuity contract.

(s) Failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures required by Section 10 of the “Military Personnel Financial Services Protection Act,” Pub. L. No. 109-290, p.16, which are hereby incorporated by reference.

(t) When the sale is conducted in-person face-to-face with an individual known to be a service member, failing to provide the applicant at the time the application is taken:

1. An explanation of any free look period with instructions on how to cancel if a policy is issued; and

2. Either a copy of the application or a written disclosure. The copy of the application or the written disclosure shall clearly and concisely set out the type of life insurance or annuity contract, the death benefit applied for and its expected first year cost. A basic illustration that meets the requirements of Section 626.99, F.S. shall be deemed sufficient to meet this requirement for a written disclosure.

(u) Excluding individually issued annuities, recommending the purchase of any life insurance product which includes a side fund to a service member unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable.

(v) Offering for sale or selling a life insurance product which includes a side fund to a service member, who is currently enrolled in SGLI, is presumed unsuitable unless, after the completion of a needs assessment, the insurer demonstrates that the applicant’s SGLI death benefit, together with any other military survivor benefits, savings and investments, survivor income, and other life insurance are insufficient to meet the applicant’s insurable needs for life insurance.

1. “Insurable needs” are the risks associated with premature death, taking into consideration the financial obligations and immediate and future cash needs of the applicant’s estate and/or survivors or dependents.

2. “Other military survivor benefits” include, but are not limited to: the Death Gratuity, Funeral Reimbursement, Transition Assistance, Survivor and Dependents’ Educational Assistance, Dependency and Indemnity Compensation, TRICARE Healthcare benefits, Survivor Housing Benefits and Allowances, Federal Income Tax Forgiveness, and Social Security Survivor Benefits.

(w) Excluding individually issued annuities, offering for sale or selling any life insurance contract which includes a side fund:

1. Unless interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty;

2. Unless the applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product. For this disclosure, the effective rate of return will consider all premiums and cash contributions made by the policyholder and all cash accumulations and cash surrender values available to the policyholder in addition to life insurance coverage. This schedule will be provided for at least each policy year from one (1) to ten (10) and for every fifth policy year thereafter ending at age 100, policy maturity, or final expiration; and

3. Which by default diverts or transfers funds accumulated in the side fund to pay, reduce, or offset any premiums due.

(x) Excluding individually issued annuities, offering for sale or selling any life insurance contract which after considering all policy benefits, including but not limited to endowment, return of premium or persistency, does not comply with standard nonforfeiture law for life insurance.

(y) Selling any life insurance product to an individual known to be a service member that excludes coverage if the insured’s death is related to war, declared or undeclared, or any act related to military service except for an accidental death coverage, e.g., double indemnity, which may be excluded.

(7) The department has authority to investigate the affairs of any person to whom this rule applies to determine whether such person has violated this rule. If such investigation demonstrates that a violation of this rule has occurred, the person in violation shall be subject to the procedures and penalties provided in Sections 626.9571, 626.9581, 626.9591, and 626.9601, F.S.

Specific Authority 624.308(1), 626.9541(1), 626.9611(2) FS. Law Implemented 626.307(1), 626.951, 626.9521, 626.9541(1), 626.9611 FS. History–New_________.

NAME OF PERSON ORIGINATING PROPOSED RULE: Phil Fountain, Assistant Director, Bureau of Licensing, Division of Agent and Agency Services, Department of Financial Services
NAME OF SUPERVISOR OR PERSON WHO APPROVED THE PROPOSED RULE: Nancy Rowell, Director, Bureau of Licensing, Division of Agent and Agency Services, Department of Financial Services
DATE PROPOSED RULE APPROVED BY AGENCY HEAD: August 06, 2007
DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: August 10, 2007