(Sacramento, CA) - Governor Jerry Brown signed legislation authored by Assemblymember Bob Blumenfield (D-San Fernando Valley) that will enact sweeping consumer protections in California's annuities market, valued at $20.7 billion last year.
"This breakthrough will help protect the hard-earned financial security of Californians, especially seniors, and end an alarming breeding ground for fraud," said Blumenfield. "Consumers are frequently sold annuities without understanding that their money will be unavailable for years and prohibitively expensive to recover in the short term. We now have stronger tools to go after scam artists who sell consumers financial products they don't need."
An annuity is the opposite of life insurance. The consumer pays a large sum or premiums to an insurer and then a smaller sum is paid out to the insured over his or her lifetime – similar to a reverse mortgage. In 2010, Californians spent $20.7 billion on annuities - a third of all insurance premiums that year. The problem is there is no legal requirement that insurers determine that an annuity purchase is financially suitable for the consumer prior to the sale or the issuance of an annuity. Consequently, annuities are frequently sold to the wrong people. Last year, our Insurance Commissioner received nearly 2,000 complaints from consumers relating to annuities and life insurance, which are frequently sold together. But many cases of fraud go unreported.
Assembly Bill 689 requires insurers to verify that an annuity purchase, exchange or replacement is reasonably "suitable" for the consumer based on an evaluation of a consumer's age, income, financial objectives, liquidity needs, use of the annuity, and other data before recommending the purchase of an annuity to a consumer. It also empowers the Insurance Commissioner to revoke an insurance agent's license, impose fines, and/or order the restoration of lost funds to the consumer when suitability standards are violated.
"For far too long, seniors have been victimized by insurance agents who aggressively market and sell annuity products that are simply unsuitable for them," said Insurance Commissioner Dave Jones, a strong supporter of the bill. "Many people unwittingly buy these products not realizing that their invested funds won't be available to them or they're terribly expensive to recover if they want to withdraw their money to pay for immediate expenses. It can be financially devastating to seniors on a fixed income. I want to thank Assemblymember Blumenfield for authoring this vital piece of legislation and the Governor for signing it into law."
By signing this bill, the Governor preserved California's ability to exceed federal safeguards provided by the Securities and Exchange Commission with our own stronger protections.
AB 689 passed the Legislature on August 25 with a State Assembly vote of 75-0, following a Senate vote of 34-0. This legislation was supported by AARP and Consumer Watchdog, which have been pursuing annuity reform for a number of years. Additional information is available at http://www.leginfo.ca.gov.
Contact: Anthony Matthews, tel. (916) 319-2040
