The Pennsylvania Insurance Department issued the following news release:
Insurance Department Consumer Liaison David Buono today urged Area Agency on Aging leaders to educate seniors who visit their centers about the beefed-up consumer protections around annuities, contained in Act 48 signed by Governor Wolf in June.
“This law is an important part of Gov. Wolf’s consumer protection agenda, and will go a long way toward protecting Pennsylvanians, especially seniors, from losing their hard-earned money to annuity scams in the future,” Buono told the Department of Aging’s quarterly meeting of Area Agency on Aging leaders from across Pennsylvania, gathered in Hershey, Dauphin County.
Several major insurers recently reported spikes in sales, with more than $59 billion worth of annuities sold nationally during 2018’s first quarter, the highest sales since the ‘fiduciary rule’, requiring financial brokers to put customers’ interests ahead of their own, was put in place in 2015. That rule is no longer in effect.
An annuity is a contract between an individual and an insurance company for the payment of money while the individual is living. Annuities are often part of retirement financial plans. Buono thanked Sen. Don White (R) Indiana County, chairman of the Senate Banking and Insurance Committee, for sponsoring the language in the law strengthening consumer annuity protections.
“Annuities can be an important part of an individual’s retirement financial plan, but it’s vital the annuity be right for the person buying it,” Buono said. “This law puts additional requirements on both agents and insurance companies to make sure an annuity is appropriate for the consumer and gives my department more authority to hold agents and insurers accountable.”
The new law adds consumer protections to annuity sales by requiring an agent, or an insurance company if it sells directly to a consumer, to gather much more financial information to determine whether an annuity is suitable for the consumer. Under the law, anyone selling an annuity must base the annuity’s suitability on the consumer’s:
* Age and annual income
* Financial situation, needs experience, and objectives
* Intended use of the annuity and time frame for using the money
* Existing assets, including investments and life insurance
* Risk tolerance and tax status
Under the old law, someone selling an annuity only needed to know the consumer’s financial and tax status, investment objectives, and other information the seller considered reasonable.
“One scam this law will help prevent is called ‘churning’ or ‘twisting’, which happens when someone sells a replacement for an existing annuity the consumer already owns, which does not benefit the consumer, but often provides a hefty commission for the seller,” Buono said.
Buono noted the Insurance Department has revoked the licenses of two agents, working as a husband and wife team, who scammed 42 consumers, costing them a combined $159,000 in surrender charges, and making more than $136,000 in commissions on the inappropriate sales. The department has recovered the money consumers lost from one of two insurers for whom the agents sold annuities, and is working on restitution from the other insurer.
The new law requires an agent or insurance company to inform consumers of:
* Any surrender charges they face if replacing an existing annuity
* Any investment advisory fees, tax penalties, or other costs
* Any loss of benefits or changes to riders by replacing the existing annuity
“Importantly, the seller must take into account whether the consumer has had another annuity exchanged or replaced within the last 36 months, to better protect unsuspecting consumers from being victimized by this ‘churning’ of annuities,” Buono said.
The new law also requires, for the first time, anyone selling annuities in Pennsylvania to take four credit hours of training to sell these products, and holds the insurance company accountable for making sure anyone selling annuities for them has completed this training.
The Insurance Department can now also better hold both insurance companies and agents accountable for inappropriate annuity sales practices. The insurance commissioner may impose penalties and sanctions on both an agent and an insurance company for either inappropriate sales practices, or for failing to make sure the seller obtained all the financial information needed to determine whether the specific annuity is suitable for the consumer.
Agents or insurance companies must also make written record of their recommendation and get a signed statement from the consumer if the consumer refuses to provide requested financial information, or buys an annuity the agent or insurer does not recommend. And, an insurance company may review the seller’s recommendation and refuse to issue the annuity if the company believes it is not suitable for the consumer.
“Most people selling annuities are honest and do what is right for their customers. This new law won’t stop every scam artist, but it gives consumers much stronger protection, and gives our department the ability to take stronger action against those who break the law,” Buono said.
Buono provided senior center leaders at the meeting with the Insurance Department’s new brochure (http://www.insurance.pa.gov/Coverage/Documents/Older%20Pennsylvanians/Annuity%20Law%20Booklet.pdf) on the law’s enhanced consumer protections, and a consumer tip sheet called The Do’s and Don’ts of Annuities (http://www.insurance.pa.gov/Documents/The%20Do%27s%20and%20Don%27ts%20of%20Annuties%20web.pdf), both on the department website, www.insurance.pa.gov, on the Seniors insurance page. He urged the center leaders to share these information pieces people visiting their centers, and encourage seniors to read them and be informed before making any decisions on buying annuities. Consumers can also ask a question or file a complaint on the website, or by calling the Consumers Services Bureau hotline at 1-877-881-6388.