February 05, 2010

Nationwide Life Insurance to pay $2 million to Missouri, other states, over variable annuity sales

Jefferson City, Mo. - Two life insurance companies will pay fines to the state of Missouri and could be refunding money to consumers over concerns about unsuitable sales of variable annuities. The Missouri Department of Insurance, along with regulators from four other states, has reached a settlement with Nationwide Life Insurance Co. and Nationwide Life and Annuity Insurance Co. requiring the companies to pay $2.1 million in penalties. Missouri's portion of the settlement is $264,303.

State regulators became concerned that Nationwide Life's variable annuities were sold improperly to investment clients of Kansas City-based Waddell & Reed Inc. Annuities are investment products sold by life insurance companies. Variable annuities invest money in the stock market, which can make for a more volatile and less conservative investment.

The biggest concern for regulators was Waddell's encouraging clients to move their investment dollars from one annuity to another that may have been less suitable and had a lower death benefit. In addition, the clients paid nearly $10 million in fees for these transactions. A 2004 settlement with Waddell and Reed called for a refund of many of those fees, and this settlement calls for fines and additional relief to some consumers who were sold annuities that may have been inappropriate for their needs.

"Annuities can be highly complex products, difficult for many consumers to understand," said John M. Huff, director of the Missouri Department of Insurance, Financial Institutions and Professional Registration (DIFP). "That's why it's so important for consumers - especially seniors - to be able to trust in the advice of their life insurers and financial advisors. Clearly, these consumers did not get advice that was in the best interest of their financial future."

Huff says with the uncertainty of the stock market in recent years, more investors may be turning to annuities, which can offer guaranteed returns. Also, President Obama recently announced an initiative to educate consumers about the pros and cons of annuities as a way to secure income during retirement.

Though the allegations in the settlement pertain to the sale of annuities by Waddell & Reed, the regulators say Nationwide Life did not take the required steps to ensure that Waddell's supervision and control were adequate.

Affected consumers will soon receive a notice from Nationwide Life informing them of their restitution options. Consumers with questions can contact the Missouri Department of Insurance online or at 1-800-726-7390.