Securities Regulation and Litigation Lawyer & Attorney : OverRegd Blog : Lindquist & Vennum Law Firm, Minneapolis and Denver

As predicted back in January when I reported on Minnesota’s lawsuit against Allianz, more insurance companies are becoming embroiled in lawsuits because of their annuity sales practices to senior citizens. After filing its lawsuit against Allianz, Minnesota filed a similar suit against American Equity Investment Life Insurance Company in April, again alleging that the company’s annuity sales practices violated the state’s suitability laws. And yesterday, Minnesota filed yet another lawsuit – this time against Midland National Life Insurance Company of West Des Moines, Iowa.  www.ag.state.mn.us/Consumer/PressRelease/%20071129MidlandLife.asp

Like the Allianz and American Equity lawsuits, Minnesota’s complaint against Midland National alleges that the company failed to ensure that annuities were suitable for the senior citizens purchasing them. The complaint focuses on the sale of long-term deferred annuities to seniors who cannot afford to have their money tied up for that period, as well as steep surrender charges for early withdrawal.

Allianz settled its suit with Minnesota in October, agreeing to put into place a restitution process for over 7,000 affected seniors, and to change its practices in connection with suitability determinations.  Midland National now joins the non-glorious lawsuit ranks with American Equity, whose case is also pending in Hennepin County District Court. 

This rocky regulatory terrain for companies selling deferred annuities to seniors exists not only at the state level, but nationally as well.  Minnesota’s very own AG, Lori Swanson, recently testified about annuity sales practices to seniors before the Senate’s Special Committee on Aging. It doesn’t take a crystal ball to predict that this heightened scrutiny will continue for some time.

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In the purchase, sale or exchange of an annuity, the suitability requirements of a seller and the protections offered to the customer, vary greatly depending on the product and the state in which the transaction occurs. The reason, of course, is that the sale of fixed annuities is regulated solely by state insurance commissioners, whereas the sale of variable annuities is regulated by the state insurance commissioners, along with the SEC, NASD, and state securities regulators.

Last year, the Minnesota Department of Commerce and the NASD formed the Annuity Working Group to evaluate regulatory standards for annuities. This week, members of the Annuity Working Group, including the NASD and state regulators from Minnesota, Iowa, and North Dakota, announced in a news release their joint support for the Suitability in Annuity Transactions Model Regulation ("Model Suitability Rule"). The Model Suitability Rule was recently approved by the National Association of Insurance Commission, but would have to be adopted on a state-by-state basis. In essence, the rule imposes a suitability requirement on the purchase or exchange of fixed annuities in states where no such requirement currently exists, and would further impose a suitability obligation on insurance companies in the sale of variable annuities.

If uniform suitability protection for investors is the goal - this is a step in the right direction.

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A Warning Flag From The NASD For The Life Settlement Industry:
"A variable life settlement may be a valuable option for insureds who otherwise would surrender their policies or allow them to lapse. However, variable life settlements are not for everyone."

NASD Notice to Members 06-38 August 2006. Here it comes insurance folks - suitability review by the NASD. If you are encouraging a policy holder to sell a variable life insurance product in the secondary market, you are subject to NASD regulation.

What is a life settlement? What does the regulation of it by the NASD mean?

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Annuities in all their forms are the hottest retirement savings ticket in town. And the securities and insurance regulators have decided there needs to be some "comparable rules" for annuity sales whether they are fixed, variable, or equity indexed. What does this mean exactly? Are the state insurance regulations and its regulators going to start looking and acting like the NASD?

On May 5, 2006, the Minnesota Department of Commerce and the NASD co-hosted a roundtable in Washington D.C. to begin the discussion. I was impressed with the industry turnout and the willingness by all to debate the issues. And those issues were: Should there be comparable regulatory standards for supervision of insurance brokers/agents, suitability, advertising, sales force training and disclosure requirements? The NASD Chairman and Minnesota Commerce Commissioner think it was "the general consensus of the more than 20 securities and insurance regulators and industry executives who participated that investors purchasing fixed, variable or equity indexed annuities should be comparably protected, regardless of which regulatory regime covers the particular product they buy." Joint Statement of NASD Chairman and CEO Robert Glauber, Minnesota Commerce Commissioner Glenn Wilson Regarding Success of Annuity Roundtable, NASD News Release, May 16, 2006.

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