Striking for the fifth time in two
years, Lori Swanson, the state of Minnesota’s attorney general, has
extracted a settlement from a life insurer accused of mis-selling
deferred annuities to senior citizens resident in the state.
Swanson’s most recent target is Great American
Life Insurance Company (Great American) which has agreed without
admitting guilt to make refund claims involving about 2,000
policies with an estimated value of about $50 million.
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Specifically, consumers who were aged 65 or
older and purchased a deferred annuity from Great American between
1 January 2001 and 1 August 2008 can submit a claim for a full
refund.
Consumers who purchased annuities after 1
August 2008 may also file complaints with Swanson’s office.
Refund requests will be “liberally construed”
in favour of the consumer, Swanson said in a statement.
If it is determined that a deferred annuity
sale was unsuitable or based on misrepresentations, Great American
has agreed that it will offer the consumer a premium refund without
surrender charges or penalties, plus 4.15 percent interest
compounded annually.
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By GlobalDataGreat American will also now be required to
improve deferred annuity sales standards through a new protocol
which Swanson termed an “enhanced suitability review
procedure”.
This requires the insurer to ascertain whether
the consumer has sufficient liquid assets and disposable income to
cover living expenses and emergencies without access to all of the
money that would be paid into the annuity.
Great American must also conduct a manual
“elevated review” of annuity applications if a consumer is 65 years
of age or older and:
• Has liquid assets of $75,000 or less after
purchase of the annuity ; or
• Anticipates a significant increase in living
expenses or a significant reduction in net income or liquid assets
during the annuity’s deferral or surrender charge period, whichever
is longer; or
• Has an annual income of $20,000 or less;
or
• The premium to be paid into the annuity
exceeds 25 percent of the consumer’s net worth (excluding home);
or
• The premium to be paid into the annuity is
greater than four times the consumer’s annual income.
If an annuity application is subject to an
elevated review, Great American will issue the policy only if it
determines and documents specific, objective evidence establishing
that the sale is suitable for the consumer in light of his or her
stated financial condition, needs and objectives.
The agreement with Great American is modelled
after previous settlements reached by Swanson with Allianz Life
Insurance Company of North America (October 2007), American Equity
Investment Life Insurance Company (February 2008), AmerUs Life
Insurance Company and American Investors Life Insurance Company,
now units of UK insurer Aviva (October 2008), and Midland National
Life Insurance Company (December 2008).
