Senator Elizabeth Warren has a beef with the insurance industry: she claims a loophole is costing American consumers US$17 billion every year.
Warren is currently targeting the sale of annuities - she says agents are incentivized to miss-sell packages to their customers.
Warren asked 15 of the largest insurance companies in the country to disclose what they offered their
insurance brokers and 13 failed to do so to her satisfaction, while only two said they do not pay indirect non-cash rewards. She claims in her findings that there is a widespread practice of insurance companies offering non-cash kickbacks such as free meals, hotel stays, vacations, gift cards, golf outings and other trips to agents in exchange for sales that ultimately benefit the agent and the company and not the consumer.
These kickbacks are currently legal, but Warren wants to put a stop to that.
The senator concedes that annuities can be a valuable product for some consumers in some circumstances, offering guaranteed payouts over time. But annuities are complex instruments that make it difficult for customers to comparison shop, often placing them at the mercy of a sales agent.
In a report, she references the sale of long term annuities to wholly inappropriate individuals, such as people who have already surpassed their life expectancies or to individuals with terminal illnesses, Alzheimer’s or dementia, as a significant problem.
In 2014, more than US$235 billion worth of annuities were sold in the United States, but she claims they often don’t suit the needs of the customer.
“The Department of Labor has proposed a new Conflict of Interest rule that would eliminate the worst sales practices of the annuity industry and the retirement investment advice industry more broadly...This means that a retirement investment adviser cannot steer a customer to an inferior product simply because it boosts the adviser’s own income or comes with an enticing giveaway,” Warren reported.
