Insurance regulators are joining the attack on investment fraud that targets older Americans.
On Sept. 7, the Iowa Insurance Division in Des Moines became the first insurance regulator to bar agents who sell annuities and long-term-care insurance from using designations that it hasn’t approved. The regulator is also holding insurance companies responsible for ensuring that their agents abide by certain standards related to the use of designations, marking a first in the industry.
The Iowa directive “pretty much stops the use of any kind of ‘senior counseling’ or ‘senior expert’ or ‘certified senior’ [designations from being used],” said Jim Mumford, first deputy insurance commissioner and securities administrator in the Iowa Insurance Division. “It pretty much takes ‘senior’ out of play.”
Iowa is home to a number of life insurers, including The
Principal Financial Group Inc. of Des Moines and American Equity Investment Life Insurance Co. of West Des Moines; and the annuity operations of several others, including Aviva Life Insurance Co. of Quincy, Mass., ING U.S. Financial Services of Atlanta and Midland National Life Insurance Co. of Sioux Falls, S.D.
Also, Wisconsin’s insurance regulator last week convened a group of insurance companies in an effort to develop new standards governing company supervision of agents as it pertains to annuity suitability rules.
“When we just enforce against agents, that’s very reactive,” said Sean Dilweg, Wisconsin’s commissioner of insurance in Madison and chairman of the elderly-issues task force of the National Association of Insurance Commissioners in Kansas City, Mo. “If we can prevent it, that’s a preferred route.”
Any standards that are developed will be presented to the NAIC’s elderly-issues task force, Mr. Dilweg added.
The moves follow similar actions by three state securities regulators over the past year.
In addition, the Securities and Exchange Commission last week unveiled the results of a sweep of 110 free-lunch seminars. In that report, the SEC said that 50% of the investment seminars featured exaggerated or misleading advertising claims and that 59% were poorly supervised by financial services firms.
The SEC also said that in 23% of cases, examiners found indications that unsuitable recommendations to purchase investments were made at the sales seminar or following the seminar when an attendee opened an account.
The sweep exams were conducted with the help of the
Financial Industry Regulatory Authority Inc. of New York and Washington, and the North American Securities Administrators Association Inc. of Washington.
Securities regulators increasingly are pointing to insurance agents as the source of many of the problems related to the use of misleading designations, free-lunch seminars and unsuitable sales of annuities to older Americans.
“What we have seen is, there have been insurance agents who dropped their broker-dealer registrations [or] their investment adviser registration, so as to avoid federal and state oversight,” said Bryan Lantagne, director of the Massachusetts Securities Division in Boston.
In June, Massachusetts adopted regulations prohibiting advisers from using designations unless those designations are approved by a national certifying agency.
But the trade association that represents insurance agents counters that its members are being painted with too broad a brush.
“Just because somebody has a designation doesn’t mean they’re a crook,” said Michael Kerley, senior vice president of federal relations for the National Association of Insurance and Financial Advisors in Falls Church, Va.
“We believe annuities, both variable and fixed, have a very appropriate place in the financial plan of individuals,” he added.
The issue of financial fraud against the elderly is “a much deeper issue” than designations and free-lunch seminars that result in unsuitable sales of annuities, Mr. Kerley said.
“People want to convict an industry because of a couple of bad actors,” he added. “That’s just not fair.”
The American Council of Life Insurers in Washington is taking a neutral stance on whether insurers should be held responsible for enforcing the use of designations.
Since the Iowa action came in the form of a bulletin interpreting the state’s insurance advertising regulations, it isn’t open for public comment, ACLI spokesman Whit Cornman said.
“It’s not a question of supporting or opposing it,” he said. “It’s something we’re going to have to keep an eye on.”
ACLI members are developing disclosure documents to implement the NAIC’s model disclosure rule regarding annuity sales.
Mr. Cornman said that the ACLI disclosure documents should be out “soon,” but he couldn’t say whether that means this year.
The fact that many insurance agents are independent makes it harder to supervise them, said NASAA president Joseph Borg, who also is director of the Alabama Securities Commission in Montgomery.
The credibility insurance agents have in their local communities makes them “a good target for promoters” of products that are either illegal or are often being sold unsuitably to the elderly, he said.
“They have found that marketing through the free-lunch programs is a good way to market,” Mr. Borg said, referring to variable annuities and equity index annuities. “They really don’t know the ins and outs of what they’re selling.”
Independent agents may not receive enough training for the products they are selling, Mr. Dilweg said. “Consumers should not be making these choices in a vacuum,” he said.
“They should not just be talking to an insurance agent; they should be talking to a real financial adviser,” Mr. Dilweg added.
Sara Hansard can be reached at
[email protected].
