NEW YORK - Many of the same attorneys general who were instrumental in ferreting out contingent-commission abuses by property-casualty insurers - as well as market timing permitted by life insurers writing variable annuities - have set their sights on alleged variable annuity sales abuses.
New York Attorney General Eliot L. Spitzer has subpoenaed The Hartford Financial Services Group Inc. of Connecticut regarding its variable annuity sales to people 65 and older - including new sales and so-called 1035 exchanges of one variable annuity for another.
The company, the largest variable annuity provider in the country, reported the subpoena in an 8-K Securities and Exchange Commission filing in June.
"We are cooperating fully with the subpoena but can't elaborate on it," said Cynthia Michener, a spokeswoman for The Hartford.
Connecticut Attorney General Richard Blumenthal said in a statement in June that his office was investigating alleged variable annuity abuses by The Hartford and other insurers.
It's likely that additional insurers have been or will be subpoenaed, and the subpoenas will be made public as the companies make their regulatory filings, industry observers noted.
Litigation and education have also begun. California Attorney General Bill Lockyer in February sued insurers that allegedly induced retirees to buy variable annuities that were inappropriate investments for them. New Jersey Attorney General Peter Harvey has warned seniors about the investment risks of variable annuities, as well as the possibility of high surrender fees and steep sales commissions.
Different regulatory skills
Variable annuities are already regulated, or at least overseen, by many state securities and insurance departments, as well as by Washington-based NASD. But attorneys general bring different "skill sets" to the regulatory process, said Brian Atchinson, executive director of the Insurance Marketplace Standards Association in Chevy Chase, Md.
Attorneys general almost exclusively look out for consumers, while other regulators, such as state insurance departments and NASD, have to balance the interests of consumers and financial services companies to achieve the goal of promoting a healthy and competitive marketplace, said Mr. Atchinson, who began his career in the New York attorney general's office prior to Mr. Spitzer's tenure.
Others think sufficient oversight of annuity sales is already in place.
"Variable annuities have to conform to NASD suitability requirements relating to risk tolerance, savings goals and retirement strategies," said Mike DeGeorge, vice president and general counsel of the National Association of Variable Annuities in Reston, Va. Those requirements protect all people, including those 65 and older - the group on which the attorneys general are focusing, he added.
Abuses need special attention
"Insurance regulators do a good job of overseeing the marketplace, but attorneys general - in addition to their consumer focus - are better at uncovering market abuses, and antitrust and competition abuses," Mr. Atchinson said.
He mentioned the contingent-commission scandal in the property-casualty-insurance sector as an example in which attorneys general had more success than state regulators with marketplace abuses.
Scandals are often based on "isolated abuses by a few bad actors," and attorneys general are often better at investigating this type of misconduct, Mr. Atchinson said.
Few state insurance departments, for instance, have all the resources necessary to oversee 30 or more lines of insurance and to conduct such investigations, he added. "A collaborative relationship among all the regulators works best."
"The variable annuities industry takes regulations seriously," said NAVA's Mr. DeGeorge. "But you have to remember that sometimes attorney general investigations lead to something, and sometimes they don't."