Class-Action Suit Targets Security Benefit’s Proprietary Index
October 29, 2019 by John Hilton
Three consumers filed a class-action lawsuit alleging that Security Benefit Life Insurance Co. defrauded consumers by implementing a “fraudulent scheme” involving a proprietary index used in two fixed indexed annuities.
The plaintiffs, from Illinois, Arizona and California, where the suit was filed Oct. 16, claim the company misrepresented returns.
“Security Benefit’s fraudulent scheme included the development and marketing of a series of misleading and deceptive annuity products purporting to provide above-market returns through purported ‘uncapped’ 100% participation in the gains in certain ‘proprietary’ indexes artificially engineered specifically for use in these new annuity products,” the lawsuit reads.
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“The ALTVI is among many proprietary indices created by indexed annuity sellers to help market more attractive-looking products during a low interest-rate environment,” said Sheryl Moore, president and CEO of Moore Market Intelligence.
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“There are over 100 different indices being used to offer indexed interest on annuities today,” Moore said. The new lawsuit could be a “warning to other product manufacturers,” she added, because it mentions issues that are salient to many of those in the indexed insurance space.
As for Security Benefit, “when it comes to marketing indexed annuities,” Moore said, “they are not any better or worse than anyone else in this industry.
“However, they were one of the first to offer this type of index, it is limited in its distribution, and the product doesn’t credit interest until the end of five years. If the index is down, that means clients are getting no gain, which is a hard pill for many to swallow if not diversified in their allocation.”
