Monday, January 25, 2016

No. 140: Senator Elizabeth Warren and the Insurance Company Letters to Her about Annuity Sales Incentives

On April 28, 2015, U.S. Senator Elizabeth Warren (D-MA), the Ranking Member of the Subcommittee on Economic Policy of the Committee on Banking, Housing, and Urban Affairs, wrote to 15 major issuers of annuities seeking "information on rewards and incentives offered by your company to brokers and dealers who sell annuities to families and small investors." I discussed Senator Warren's investigation in No. 97 (May 4, 2015) and in a follow-up in No. 124 (November 2, 2015). This is a second follow-up.

My Request to Senator Warren's Office
Shortly after the May 11, 2015 response date in Senator Warren's letters to the companies, I submitted to her office, pursuant to the U.S. Freedom of Information Act, a request for copies of the companies' response letters. Her office denied my request.

My Request to New York
The New York Department of Financial Services (DFS) asked the companies for copies of their letters to Senator Warren. On May 29, I submitted to DFS, pursuant to the New York Freedom of Information Law (FOIL), a request for copies of the letters. DFS acknowledged the request promptly, but said there would be a delay in responding.

On November 24 DFS sent me the 15 letters. The letter from Prudential is marked confidential, includes a request for confidentiality under the FOIL exemption for trade secrets and confidential financial information, and has portions redacted (blacked out) pursuant to that exemption. The letters from Allianz Life and Jackson National are unredacted. The other 12 letters are not marked confidential but contain redactions made by DFS.

My Requests to the Companies
On January 4, 2016, I wrote by regular mail to the 13 companies whose letters contain redactions. I enclosed a copy of the letter showing the redactions, and asked each company to send me—by January 15—an unredacted copy of its letter. I did not write to Allianz Life or Jackson National because their letters are unredacted.

Responses to My Requests
In response to my requests, Lincoln Financial, New York Life, and Pacific Life sent me their unredacted letters. AXA Equitable Life and Athene Annuity and Life acknowledged my request but declined to send their unredacted letters. The other eight companies did not acknowledge my request: American International Group, American Equity Investment Life, MetLife, Nationwide Life, Prudential, RiverSource Life, TIAA-CREF, and Transamerica.

Redactions by Regulators
Members of the public do not often have the opportunity to evaluate the redactions made by insurance regulators when they respond to requests pursuant to public records laws. Such an opportunity arose in connection with the company responses to Senator Warren's investigation of annuity incentives. That is why I decided, with regard to companies for which I have the unredacted and redacted versions of their letters, to include both versions in the package I am offering. By comparing the two versions, readers can judge for themselves the reasonableness of the redactions.

A similar opportunity arose in connection with the 1986 testimony of four officials of Executive Life Insurance Company of New York during a reinsurance investigation by what was then the New York Department of Insurance. I was able to identify a substantial amount of material that the company wanted redacted and that the Department did not redact. The incident is described briefly on pages 85-88 in my new book, The Insurance Forum: A Memoir, and the full details are in the October 1988 issue of The Insurance Forum.

General Observations
When I compared the unredacted letters with the redacted versions, I was surprised by some of the redactions that DFS made. Here, as examples, are three sentences that DFS redacted but that I think do not warrant trade secret protection:
  • Lincoln uses an independent model to distribute our annuity products, which are sold through affiliated and non-affiliated channels.
  • New York Life does not sponsor trips, contests, or prizes for third party distributors.
  • Registered representatives and producers must be state insurance licensed and appointed by Pacific Life in each state where they sell Pacific Life annuities.
I have said on previous occasions that the life insurance industry is built on the nondisclosure of information that is vital to life insurance consumers. Regrettably, state insurance regulators aid and abet such nondisclosure through their redaction practices in response to requests pursuant to public records laws.

Available Material
I am offering a complimentary 78-page PDF consisting of a one-page cover note listing the contents of the PDF, a sample of Senator Warren's five-page request letter to the companies, and all the unredacted and redacted company response letters I have. Email and ask for the January 2016 Warren/DFS package.