Six life insurance companies operating in the US have been fined by the New York Department of Financial Services (NYDFS) for improperly letting their customers switch their existing annuities to another type that generated less income.
The NYDFS said that the decision is part of an industrywide investigation into practices involving insurers’ recommendations to replace a type of annuity with another. Last year, the regulator issued a new rule which required that the recommendations for buying life insurance and annuities be in a consumer’s “best interest” and that it should “appropriately address” the consumer’s insurance needs and financial objectives.
The regulator found that the six insurers recommended their consumers, who had purchased deferred annuities (wherein payments start at a future date, but allow consumers to earn interest on their premiums), switch to immediate annuities (wherein payments start after 13 months). However, the insurers did not properly explain to consumers about the differences in income they would receive from the two types of annuities, and whether the replacement annuity was suitable.
NYDFS ultimately ruled that the recommendation to switch would cost consumers “substantial lifetime income.”
“The Department is putting New York’s life insurers on notice: they must comply with our regulations,” NYDFS superintendent Linda Lacewell said in a statement.
Altogether, the insurers will have to reimburse $1.15 million to NY customers and pay $673,000 in penalties, Reuters reported. In addition, all six insurers are complying with the NYDFS’s recommendation to revise their disclosure statements.
Of the six, Companion Life Insurance has been ordered to pay the largest share. The company is to reimburse $462,122 to NY customers, and pay a $186,000 penalty. Penn Mutual Life Insurance Company follows, with the insurer returning $322,584 and paying a $133,000 penalty.
The Guardian Insurance & Annuity Company agreed to return $218,589 and pay a $224,000 fine.
Other insurers involved in the reimbursement include Northwestern Mutual Life Insurance, Prudential Insurance Company of America, and the United States Life Insurance Company.
