Florida Adopts New Life Insurance Notice Requirement for Changes in Policy "Status"

Financial Services Regulatory   |   Insurance   |   Life, Annuity, and Retirement Solutions   |   July 10, 2017
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On June 26, 2017, a new Florida Statute (Section 626.99292) was signed into law, effective immediately, which imposes problematic policyholder notice requirements on life insurers. The new notice requirements were added by amendment in the Senate to a larger bill containing anti‑fraud revisions to Florida’s Viatical Settlement Act (the "Act"). The new statute, reportedly supported by the Life Insurance Settlement Association, provides as follows:

626.99292 Notice to insureds -

(1) A life insurer shall provide an individual life insurance policyholder with a statement informing him or her that if he or she is considering making changes in the status of his or her policy, he or she should consult with a licensed insurance or financial advisor. The statement may accompany or be included in notices or mailings otherwise provided to the policyholder.

(2) The statement must also advise the policyholder that he or she may contact the department for more information and include a website address or other location or manner by which the policyholder may contact the department.

The statute is codified within the Act, which is designed to regulate viatical settlement providers and brokers, and which includes expansive remedy provisions designed to curb historical abuses within the viatical industry. As a result, insurers may be exposed to potentially serious litigation and regulatory consequences because any violation of the new notice requirement would be deemed to constitute an unfair insurance trade practice. The Act also provides for a private right of action for any person damaged by a violation of the Act, along with an attorneys’ fee provision.

The statute is also poorly drafted and raises a host of interpretive issues including:

  • What is meant by a "change in status"? A spokesperson for the life settlement industry indicated that the notice requirement would ensure that consumers would be informed of options before lapsing or surrendering a policy that they could sell for substantially more than the surrender value.
  • When must the notice be given? The statute took effect on June 26, with no transition period. Even if an insurer expeditiously provides notice, will the notice suffice to policyholders who make a change in status after June 26 but before receiving a notice? And does the statute require a single notice or multiple notices over time?
  • Who must receive the notice? The statute’s title is "notice to insureds," but the text of the law requires notice to policyholders. Given that insureds and policyholders are often not the same person, do notices need to be sent to both? Must the notice be given only for policies purchased in Florida, or for policies where the policyholder or insured currently resides in Florida?

The bill’s "Economic Impact Statement" discusses the additional costs insurers may incur "in implementing the new requirements for fraud-prevention and required data reporting," but there is no mention of the additional costs insurers will incur in connection with implementation of the statute’s notice requirements.

In recent years, the life settlement industry has been proactive in proposing legislation throughout the country designed to facilitate life settlement transactions. The recent passage of what is now Florida Statutes § 626.99292 underscores the need for the life insurance industry to be ever vigilant.

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