With the numerous bank failures over the past eighteen months and the overall grim picture of the United States’ economy, consumers have lost confidence in placing their assets in banks and investments. The federal and state governments have made attempts to try to restore consumer trust and begin the road to recovery for our economy. With that in mind, the Florida legislature recently enacted a law which gives greater protections to consumers who wish to invest their assets in annuities and allows agents to educate their customers on those protections.
Gaining FDIC-like protection for annuities
In 2008, the Federal Deposit Insurance Corporation (FDIC) implemented a temporary increase in the amount that it would insure per depositor, per insured bank, for bank deposits held by insolvent banks and savings and loans from $100,000 to $250,000. The increase was scheduled to expire on Jan. 1, 2010, but was given a temporary extension. President Obama then made this increase permanent by signing the Dodd-Frank Wall Street Reform and Consumer Protection Act just weeks ago.
In Florida, there is a similar insurance mechanism for claims made against failing life and health insurers. This mechanism is called the Florida Life & Health Guaranty Association (FLAHIGA). FLAHIGA is the state mechanism for taking over life, health, or annuity claims of insolvent insurers. Under Florida law prior to the passage of H.B. 159, FLAHIGA could only pay up to $100,000 in cash values, $300,000 in death benefit claims, or a combination of cash value and death benefit claims not to exceed $300,000.
After the FDIC raised the limits on deposits held at banks and savings and loans, it left other investment instruments, such as annuities, at somewhat of a disadvantage in Florida, since FLAHIGA limits on cash values were still capped at $100,000. Many other states had already raised their cash value limits to $250,000 or even $300,000 for annuities. H.B. 159 sought to bring FLAHIGA more in line with similar guaranty mechanisms in other states and with the FDIC limits for investments held in banks. This legislation raises the FLAHIGA limits on cash values of annuities from $100,000 to $250,000 and levels the playing field for investors who want alternatives to putting their money in the bank. The bill went into effect on July 1, 2010. Starting on this date, investors will have the same protection when putting their cash into a deferred annuity contract as they would when putting money in an FDIC-insured bank.
Opening communication channels
The legislation also contains a provision which allows agents to discuss the existence of FLAHIGA with consumers who inquire about the protection of their assets. Previous law prohibited any entity – including insurance agents and financial advisors – from advertising or discussing FLAHIGA or its limits. And though the new law prevents agents from advertising guaranty fund limits as a tactic to market their products, it recognizes that agents must be in a position to discuss this issue with their customers if the customers inquire. H.B. 159 allows agents to provide written information prepared by FLAHIGA to their customers summarizing claim, cash value, and annuity cash value limits of the association.
With the passage of this legislation, investors have more protection and more information than ever before when it comes to insurance investments in Florida. Agents will benefit from making themselves familiar with the new laws and the new publications that will be available from FLAHIGA to provide to their consumers and applicants. As a result of this law, they will now be prepared with the necessary tools to help protect their customers’ investments and assets.
Abby Vail is an attorney at Blank & Meenan, representing NAIFA-FL. Her practice focuses on insurance regulatory and legislative matters. She can be reached at [email protected].