Uniform regulation of annuities sought


May 09, 2007|By Minneapolis Star Tribune

MINNEAPOLIS -- A group of state regulators and a top industry watchdog are backing a new rule that would provide uniform protection to people who buy annuities.

The NASD, a self-regulating organization that oversees broker-dealers, along with insurance commissioners from Minnesota, North Dakota and Iowa issued a joint statement yesterday calling for states to make sure that insurance companies sell only suitable annuities to their customers.

Under the current system, state insurance commissioners oversee insurance agents while the NASD supervises licensed broker-dealers. The person selling an annuity is sometimes both an insurance agent and a broker-dealer. And while state officials regulate fixed annuities, the NASD, the Securities Exchange Commission, and some states oversee variable annuities.

As a result, the protections afforded buyers of these products can vary depending on where they live and who sells them the annuity.

The new proposal calls for states to adopt a suitability standard for all annuity products. It also requires both insurance agents and broker-dealers to ensure their products match the best interests of their clients.

"It's time for regulators to work together to protect consumers regardless of what products they buy," said Thomas M. Selman, executive vice president of the NASD.

Regulators across the country are increasingly scrutinizing the sales and marketing practices used by insurers in selling deferred annuities to senior citizens. Such annuities are considered unsuitable for that type of buyer because they often lock up the investor's money far beyond life expectancy.

"The industry didn't do a good job as they should be doing in educating their work force" about the proper sale of these annuities, said Glenn Wilson Jr., commissioner of the Minnesota Department of Commerce. "There have been mistakes made. No question about that."

Since taking office in January, Minnesota Attorney General Lori Swanson has filed lawsuits against three insurance companies, including Golden Valley, Minn.-based Allianz Life Insurance of North America, accusing them of duping senior citizens into purchasing unsuitable annuities. Allianz has denied the allegations.

In December, the NASD fined the broker-dealer unit of Allianz Life $5 million for failing to properly supervise its employees who sold such products.

Last year, Wilson and the NASD formed the Annuity Working Group, an organization made up of insurance executives, consumer groups, and state officials, to study ways to better regulate annuities, especially variable and equity indexed annuities that have had explosive growth in recent years. Allianz praised the group's efforts yesterday.

"Allianz Life appreciates the leadership that the state commissioners and the NASD have shown on this issue," said company spokesman Jim McManus. "Allianz Life already does what the [group] recommends. ... We will not make a sale of any annuity without a completed suitability form. We also run every single annuity application through a rigorous review process that goes above and beyond what the model requires."

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