New York’s Department of Financial Services (DFS) has reprimanded six life insurance firms for violating its regulations with regard to “deferred to immediate annuity replacement transactions”.
The insurers are Companion Life Insurance, Guardian Insurance & Annuity Company, Northwestern Mutual Life Insurance, Penn Mutual Life Insurance, Prudential Insurance Company of America, and United States Life Insurance Company.
They will collectively pay $1,152,154 (£926,342, €1,047,565) in restitution to clients based in New York state, as well as hand over $673,000 in penalties.
DFS investigations found that they all failed to properly disclose income comparisons and suitability information, which caused consumers to exchange more financially favourable deferred annuities with immediate annuities.
Immediate annuities provide periodic income payments that begin within 13 months after the annuity is issued, while deferred annuities allow consumers to earn interest on their premium before receiving payments at a future date.
Details
As part of the agreements, clients will receive additional restitution going forward in the form of monthly pay-outs for the remainder of their contract terms.
The insurers have agreed to take corrective actions, including revising their disclosure statements to include side-by-side monthly income comparison information and revising their disclosure, suitability, and training procedures to comply with regulations.
The estimated amounts for each insurer are:
| Client restitution | Penalty | |
| Companion Life | $462,122 | $186,000 |
| Guardian | $218,589 | $224,000 |
| Northwestern Mutual | $31,937 | $26,000 |
| Penn Mutual | $322,584 | $133,000 |
| Prudential | $14,020 | $35,000 |
| US Life | $102,902 | $69,000 |
| Total | $1,152,154 | $673,000 |
Source: DFS
Protecting consumers
DFS superintendent Linda Lacewell said: “DFS is committed to protecting all New York state consumers, including seniors, to ensure that they receive the maximum retirement income available from their annuities.
“The department is putting New York’s life insurers on notice: they must comply with our regulations.
“DFS will continue to ensure consumers are fully informed when deciding whether to replace existing deferred annuities.”
Industry-wide investigations
The settlements are the result of DFS’s ongoing industry-wide investigation into deferred to immediate annuity replacement practices in the state.
Investigations remain ongoing with regard to additional life insurance carriers licensed by the department.
The government department said many New York clients have been receiving incomplete information regarding replacement annuities, resulting in less income for identical or substantially similar options.
Last year, DFS issued a regulation that ensures recommendations related to life insurance and annuities are in the best interest of the consumer and appropriately address the insurance needs and financial objectives of the consumer at the time of the transaction.
