The New York State Department Financial Services has sent life insurers a warning: Issuers have to be as careful about consumer protection when they’re rolling assets from deferred annuities into immediate annuities as they are with other annuity replacement transactions.
The New York department drove that point home today by requiring six insurers to pay a total of $1.1 million in restitution to consumers affected by deferred-annuity-to-immediate-annuity exchanges.
The department will also require the insurers to pay $673,000 in fines, officials said.
The issuer of a deferred annuity takes money in early on, then pays out income years later.
An immediate annuity, or income annuity, typically begins generating a stream of income around the same time it’s purchased.
Consumers who are still working often use deferred annuities to save for retirement. They may use immediate annuities to generate regular income payments after they retire.
Regulators in New York state and other states require insurers to take special care when they’re replacing consumers’ existing annuities, to keep replacement transactions from creating problems for the consumers.
In 2018, the New York department updated its existing annuity sales standards regulation. The updated regulation requires sellers’ life and annuity recommendations to be in the consumers’ best interest.
The six life insurers that are now being fined “failed to properly disclose to consumers’ income comparisons and suitability information, causing consumers to exchange more financially favorable deferred annuities with immediate annuities,” officials said. “Many New York consumers received incomplete information regarding the replacement annuities, resulting in less income for identical or substantially similar options.”
In the consent orders that describe the fines and restitution requirements, New York department officials say the six life insurers failed to “disclose to consumers that they could annuitize their existing deferred annuities with higher guaranteed income.”
The New York department said in the consent order announcement that it has been investigating industry-wide deferred-to-immediate-annuity replacement practices in New York state.
“Investigations remain ongoing with regard to additional life insurance carriers licensed by the department,” officials said.
Linda Lacewell, the state’s financial services superintendent, said in a statement that the New York department is committed to ensuring that New York consumers receive the maximum retirement income available from their annuities.
The consent order announcement and a link to copies of the consent orders are available here.
— Read New York State Growls at Out-of-State Pension Risk Transfer Marketers, on ThinkAdvisor.