Commentary: Nearly $1 million in fines levied against Delaware insurance firms

In late 2018, the Delaware Department of Insurance (DOI) initiated and completed examinations of 15 insurance companies that resulted in penalties totaling $948,000. These exams began after the DOI received complaints from consumers who believed they received bad advice concerning annuities.

Several Delawareans reported that insurance agents were approaching elderly consumers with recommendations that they surrender existing annuity products and use the money from the surrendered policies to purchase new annuities. This is a deceitful practice known as churning.

This becomes most prevalent when the equity markets are in a downturn. Agents play on fears from the unstable market, and advertise “crash proof” investments during dinner seminars or “educational” meetings at libraries and other public facilities.

During the same period that the DOI was receiving calls from concerned consumers, the DOI learned that the National Association of Insurance Commissioners (NAIC) raised the same issue at a professional conference. It was determined that elderly consumers trusted the advice of their agents, and surrendered existing policies to purchase new policies.

Trinidad Navarro

The result was a commission for the insurance sales person and an inappropriate product for a consumer because of their advancing age and/or low income. Annuities, typically purchased for future retirement income, are contracts in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid and can be guaranteed to last as long as you live.

The DOI embarked on an annuity suitability review of insurers who write such contracts in Delaware. The review was based on consumer complaints and the national concern surrounding the issuance of annuity products, particularly in replacement annuity transactions and specifically involving retirees and seniors.

The DOI first identified all insurers who offered annuity insurance products in Delaware (over 200 companies). While the Delaware Insurance Code specifically addresses the suitability of insurance products sold to seniors, our inquiry included annuities written for all ages. The Department of Insurance will continue to monitor and investigate unscrupulous conduct by insurance agents as it relates to the sale of these insurance products.

Large-scale churning was not discovered, however, the primary issue uncovered by the examinations was incomplete documentation demonstrating that the consumer understood the product they were purchasing. This incomplete paperwork supported accusations that insurance agents convinced consumers to replace their current investment products with newer products, without fully explaining the fees/commissions/risks or even the most accurate assessment of whether the new product was truly a better product than the product the investor already owned.

Additionally, the DOI found that many of the agents involved lacked proper licensing in Delaware. The settlement agreements required companies to make total corrective actions. All companies have subsequently complied.

The exam reports with the final Stipulation and Consent Agreements are available on the DOI website at The Department of Insurance is the largest consumer protection agency in the state of Delaware. The DOI protects insurance consumers through the regulation of insurance companies, agents, brokers and insurance products like annuities.

If you have questions or concerns regarding health insurance or insurance products, call the Delaware Department of Insurance at (302) 674-7300.

Trinidad Navarro is the insurance commissioner for the state of Delaware.

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