Financial fraudsters have been turning their attention more regularly to insurance products as a way to take advantage of the U.S. senior population.
Products such as annuities and life insurance have generally been viewed as less frequent targets of elder financial abuse when compared to other financial instruments, but that's changed over the past few years, executives said at the Insured Retirement Institute's Older Investors Summit on Thursday.
“I think we've seen more [fraudulent] activity and we need to be more sensitive to that,” said Walter White, president and chief executive of Allianz Life Insurance. “There's a lot of money in those products, so it's only natural they'd be attracting more attention.”
Seventy percent of personal wealth in the U.S. is held by seniors, and the senior population is growing rapidly. Ten thousand Americans turn 65 years old every day, a pace that won't slow until around 2030. This confluence of factors creates a “perfect storm” for financially exploitative activity directed at seniors, according to Liz Loewy, former chief of the elder abuse unit in the New York County District Attorney's Office.
To meet the demand of an aging population, insurers have developed several new annuity, life insurance and long-term-care products with features designed to be marketed to seniors, said James Regalbuto, deputy superintendent for life insurance at the New York Department of Financial Services. For example, insurers have been adding more features such as income riders and rollups in fixed and fixed-indexed annuities, he said.
Mr. Regalbuto said he doesn't believe insurance products necessarily represent a new frontier for elder financial abuse, but that the industry is starting to recognize the need for more safeguards to protect against fraud.
As new products proliferate, it's important for regulators to ensure any rules to curb elder financial abuse are comprehensive enough so they encompass any fledgling products, Mr. Regalbuto added.
“We're always hitting a moving target from that perspective,” he said.
Financial exploitation is the fastest-growing section of overall elder abuse, according to Kathy Greenlee, assistant secretary for aging at the U.S. Department of Health and Human Services.
“I think [seniors] are exploited because that's where the money is, and where the crooks know they should go,” Ms. Greenlee said.
The average amount of money lost in cases of elder financial abuse is around $120,000, which is especially sobering considering that's the approximate amount the average person has saved for retirement, said Jilenne Gunther, senior strategic policy advisor at AARP's Public Policy Institute.
Only around 1 in 44 cases of this abuse are ever reported, according to the National Adult Protective Services Association.
Policymakers have been ramping up their focus on elder financial abuse of late. In October, two senators introduced legislation — the Senior$afe Act of 2015 — that aims to reduce abuse by encouraging advisers and their financial institutions to report potentially fraudulent activity.
The North American Securities Administrators Association in September announced a proposal mandating disclosures to state regulators and adult protective services when there's reasonable belief of financial exploitation of a client who is at least 60 years old.
The Financial Industry Regulatory Authority Inc. also proposed a rule late last year to help prevent financial exploitation of seniors.
Finra is close to being finished reviewing all comments on that rule, and a final rule will be ready “in the near future,” Daniel Sibears, Finra's executive vice president of regulatory operations, said at the IRI event. He declined to give a precise timeline. The comment period expired Nov. 30.
While broker-dealer executives agree with the goal of protecting seniors for abusive sales practices, they worry that regulation could add costs to their businesses.