Ellis' Annuities Regulation Plan Passes Senate State Affairs
SB 961 allows the Texas Department of Insurance to regulate charitable gift annuities
(Austin) — By a vote of 7-0, the Senate State Affairs Committee today passed SB 961, legislation by Senator Rodney Ellis (D-Houston) to protect Texans from steep commissions on questionable and sometimes fraudulent financial products.
Senate Bill 961 provides the Texas Department of Insurance (TDI) with the ability to step in and to protect Texas consumers from abuses by the annuities industry. The legislation is the result of extensive investigation by TDI into complaints of the sales practices by the annuities industry. In its 2009 biennial report to the legislature, the agency stated that it "has received increased complaints regarding a variety of issues relating to sales of insurance products to seniors, including unsuitable annuity products."
"More and more Texans are falling prey to dishonest or even fraudulent annuities sales," said Ellis. "Senate Bill 961 will give the Texas Department of Insurance the power it needs to weed out the good from the bad to protect Texans."
A charitable gift annuity is a contract between a donor and a charity, whereby the donor gives cash to the charity in exchange for a partial tax deduction and a lifetime stream of annual payments from the charity. When the donor dies, the charity keeps the remainder of the cash.
While most charitable gift annuities are legitimate, some fraudulent charitable gift annuities are being sold to seniors, resulting in needless harm to Texas consumers. In the past few years, annuity companies have developed increasingly complex products that often try to "one-up" their competitor's similar product with premium bonuses and higher yields.
To combat these problems, Senate Bill 961:
- Permits TDI to verify and investigate the actual nature of charitable organizations issuing charitable gift annuities;
- Obligates charitable organizations issuing charitable gift annuities to submit information to aid TDI in an investigation of the organization;
- Applies the 70/10 Standard to annuities with fixed maturity dates;
- Allows the Commissioner of Insurance to limit an agent's commission for the sale of an annuity if it is determined the agent violated the law.
According to agency studies, though the norm for commissions is around 3.5 percent, it can be as high as 14.5 percent. High-pressure incentives offered by the industry allow some agents to rack up thousands of dollars in commissions for a single transaction. Agents are further incentivized by companies who offer luxury vacations for annuities sales.
The number of annuity sales in Texas has increased significantly in recent years and is out pacing life insurance sales. This bill simply acknowledges the high risk that exists with the combination of the increase in sales to a vulnerable population. Moreover, it ensures that the Commissioner only take this extreme action in cases of extreme abuse. Language in the bill places significant limitations on the Commissioner's ability to use this enforcement action, but it allows him to affect the root of the problem when a pattern of unscrupulous and illegal sales practices become apparent.
"Unlike other financial products, such as mutual funds, consumers are not informed as to the commission rate agents receive from selling annuities, so we have to give regulators more power to protect Texans," said Ellis.