Life and annuity marketing methods and practices

How life insurance and annuities reach buyers

Life insurance and annuities are sold through several distribution systems, and the exam expects you to recognize them:

• Career (captive or exclusive) agency system: agents represent primarily one insurer, usually recruited, trained, and supported through that insurer's branch or general agency offices.
• Independent or brokerage system: independent agents and brokers place business with several insurers and choose among their products for each client.
• Personal-producing general agents (PPGAs): experienced independent producers who contract directly with an insurer and are paid mainly on their own sales.
• Direct response and mass marketing: the insurer sells by mail, print, broadcast, telephone, or internet, often to members of a group or association, with no agent meeting the buyer face to face.

Whatever the channel, Florida applies the same rules to how the product is presented, priced, and recommended.

Solicitation disclosures and the buyer's guide

Florida's life insurance solicitation law exists so that insurers deliver information that improves a buyer's ability to select the most appropriate plan, understand the policy's basic features, and compare the costs of similar plans. A buyer's guide is the document that carries those required contents. The law applies to any solicitation, negotiation, or procurement of life insurance in Florida, including by fraternal benefit societies, but unless specifically included it does not apply to annuities, credit life, group life, ERISA pension and welfare plan policies, or variable life. Its cost comparison formulas accumulate dividends at 5 percent interest to the ends of the 10th and 20th policy years.

Honest advertising and sales presentations

It is an unfair and deceptive practice to knowingly make or circulate any estimate, illustration, circular, statement, sales presentation, omission, or comparison that:

• misrepresents a policy's benefits, advantages, conditions, or terms;
• misrepresents dividends to be received, or misstates dividends previously paid;
• misleads about an insurer's financial condition or its legal reserve system;
• uses a policy name or title that misrepresents its true nature;
• misrepresents in order to induce a lapse, forfeiture, exchange, conversion, or surrender, or a loan or assignment against a policy;
• presents a policy as shares of stock or an ownership interest in the company; or
• suggests the state or federal government stands behind the sale or guarantees returns.

It is also deceptive to use a bank's name or logo in marketing without its written consent in a way that makes a reasonable person think the solicitation came from or is endorsed by that financial institution.

Inducements and rebates

Offering, as an inducement to buy, anything of value not specified in the contract, including stocks, bonds, or other securities, is an unlawful inducement. Florida lists practices that are not unlawful rebates, including:

• bonuses or premium abatements paid to all policyholders out of surplus from nonparticipating life insurance or annuities, if fair and equitable to all;
• an allowance to industrial debit policyholders who pay directly to the insurer's office, reflecting the collection savings;
• group premium readjustments based on loss or expense, and lower rates for group or employee insurance; and
• reduced rates for salary savings, bank draft, preauthorized check, or payroll deduction plans, reasonably related to the savings.

Life insurers and agents may also offer certain value-added products or services, such as financial wellness education, post-loss services, or incentives for healthier behavior, if the cost is reasonable relative to the premium, the offer is backed by documented objective evidence and is not unfairly discriminatory, and the customer gets contact information for questions. Without enough evidence, a product may run as a pilot program for up to 1 year, after advance notice to the regulator, which has 21 days to object.

Annuities: the best-interest standard

For annuities, Florida requires agents to act in the best interest of the consumer when recommending an annuity, and requires insurers to supervise those sales. This applies to any sale or recommendation of an annuity. The agent gathers consumer profile information, such as age, income, financial situation, existing assets, liquidity needs, risk tolerance, time horizon, and tax status. If a consumer buys an annuity without a recommendation, the agent obtains a consumer-signed statement acknowledging the purchase was not recommended. Merely delivering marketing or education materials or wholesaling does not, by itself, make someone responsible for a recommendation.

Conflicts of interest for life agents

A Florida life agent may not place or modify coverage on a person who is not a family member when the agent or the agent's family member is the named beneficiary, unless that person has an insurable interest in the insured's life. A life agent or family member also may not act as trustee, guardian, or attorney-in-fact for a client, unless a family member of the client, or acting as a fiduciary while both a licensed CPA and a registered investment adviser or securities dealer.

Fair underwriting in marketing

An insurer may not refuse or limit life coverage based solely on past lawful foreign travel. Future travel plans may be considered only if the insurer shows, and the Office of Insurance Regulation determines, that travelers are a separate, actuarially supportable class, among other conditions.