Pertinent Federal Law Review Pertinent to Florida Licensed Insurance Professionals
Each state’s insurance director manages most insurance issues and products at the state level. There are, however, instances in which the state and federal governments work together, for example, Medicaid is a state and federally funded program.
State and Federal Relationship
There is a relatively new (3-years) Federal Insurance Office (FIO) that was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA), which, so far, has allowed states the same freedoms as before creation of the FIO.
The fall of the economy, during which we endured the exposure of an insurance industry debacle, played a significant role in Title V of the DFA. It created the FIO and appointed a director who had previously been the acting Insurance Director in Illinois, and an officer for the NAIC. This appointment allowed a voice for the state-run industry and, as the director said during his first press conference, the FIO has refrained from stepping into state lines. He can, however, intervene if a reasonable request is made. The FIO authorities extend to all lines of insurance except health and LTC insurances (except those lines of insurance included with life or annuity components).
Although the FIO states, “authority extends to all lines except health … “ we can hardly call the Affordable Care Act “health insurance without federal input!” We have been virtually hit over the head with volumes of Affordable Care Act documentation, rules, policies, and dates. The Act is set to run on a rolling calendar, which results in yearly changes to the rules you become accustomed, each time January 1st rolls around.
Registration for Index-Linked Annuities Act
This bill requires the Securities and Exchange Commission (SEC) to create a new form for the registration of index-linked annuities to ensure that a purchaser can make a knowledgeable decision.
The bill defines a registered index-linked annuity as an annuity that is deemed a security, that must be registered with the SEC, and that is issued by an insurance company subject to state supervision. Furthermore, the returns of these annuities:
- are based on the performance of a specified benchmark index or rate, and
- may be subject to a market value adjustment if amounts are withdrawn early.
Anti-Money Laundering (AML) and Suspicious Activity Reporting (SAR)
Overview
Money laundering is the process of disguising the source of funds obtained through criminal activity - such as fraud, drug trafficking, or terrorist financing - so they appear to come from legitimate sources. Insurance companies, particularly those that issue cash-value life insurance or annuity products, can be exploited by criminals trying to “clean” illicit money through premium payments or early surrenders.
To combat this, the USA PATRIOT Act authorized the Financial Crimes Enforcement Network (FinCEN) - a bureau of the U.S. Treasury Department - to extend Anti-Money Laundering (AML) obligations to insurance companies. These requirements are codified at 31 CFR Part 1025 and apply nationwide, including in Florida.
Who must comply
Under federal law, the insurance company itself bears primary responsibility for maintaining an AML program. However, agents and agencies are the front-line participants and are specifically covered under each insurer’s AML program. The rule applies to life insurers that issue:
Permanent (cash-value) life insurance policies,
Annuities, including fixed, indexed, and variable annuities, and
Other investment-type contracts that can store or transfer value.
Term life and property-casualty products are generally excluded, since they don’t create an investment-like vehicle for money movement.
The Agent’s Responsibility
Although insurers file the official Suspicious Activity Reports (SARs), agents are obligated to identify and escalate red flags. Typical red flags include:
A client insisting on paying large premiums with cash or money orders.
A request for early surrender or refund shortly after issue.
Frequent changes of ownership or beneficiary with no clear reason.
Reluctance to provide identification or financial information.
Foreign transfers of funds or policy loans with suspicious destinations.
If any red flag arises, the agent must promptly notify the insurer’s AML or compliance department. Agents should not tell the client that a report may be filed - doing so can constitute “tipping off,” which is prohibited under federal law.
Suspicious Activity Reports (SARs)
When the insurer’s compliance department concludes that a transaction is suspicious and involves at least $5,000, a SAR must be filed electronically with FinCEN within 30 days of detection. The report includes details of the transaction, parties involved, and reasons for suspicion.
SARs are strictly confidential; sharing or revealing their existence outside official channels is a federal offense.
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