Midland National Life Reaches $1.3 Million Settlement With California for Allegedly Selling Inappropriate Annuities
February 5, 2015 by Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com
SACRAMENTO, Calif. – Midland National Life Insurance Co. will pay $1.3 million as part of a settlement with the California Department of Insurance and make reforms to its business practices after a probe showed Midland National was allegedly misleading senior citizens when selling annuities deemed inappropriate.
The settlement stems from an 18-month market conduct investigation focused on annuities sales to senior citizens between Jan. 1, 2004 to July 31, 2005. Midland National’s $1.3 million payment due in 30 days includes a $900,000 monetary penalty and $400,000 in attorney fees and costs. The company will undergo another market conduct examination within the next five years to ensure compliance with the settlement.
The investigation showed Midland National agents allegedly were selling certificates to group annuities that were issued out of state and Midland National did not make its agents or consumers aware the annuity products had not been filed with the department. The company allegedly failed to provide important consumer protections. Midland National has agreed to business practice reforms that eliminate this practice.
The investigation also claimed Midland National agents earned commissions by allegedly selling unnecessary replacement annuities to senior citizens. The annuities usually contain provisions preventing the policyholder from liquidating assets. Seniors are more likely to need assets to pay for increased or unexpected health care or long-term care expenses.
Annuities usually include large surrender payments, which present complications for consumers who need to liquidate the annuity before the designated period ends. “Selling a long-term annuity with a 10- or 15-year surrender period to someone of advanced age can have dangerous financial consequences,” said California Insurance Commissioner Dave Jones. “If they need to liquidate assets to pay for increasing or unexpected health care or long-term care expenses before the surrender period ends, they will likely face large surrender penalties payments.”
Midland National denied the allegations made against it, according to the final settlement. However, the company stated if those claims were proven, the state would have the right to seek penalties initially sought prior to the settlement.
The agreement said Midland National will sell only those discretionary group annuities that are issued in California. Agents and consumers are to be notified that certificates to the discretionary group annuities sold are group annuities.
This is not the first major fine paid to California by Midland National. In 2013, Midland National and the North American Company for Life and Health Insurance reached a $3.3 million settlement of a multistate market conduct examination by California and six other states over the companies’ use of the Social Security Administration’s Death Master File (Best’s News Service, Nov. 25, 2013).
