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CA Department of Insurance

Governor Brown signs department-sponsored bill giving seniors more protection when surrendering annuities

News: 2017 Press Release

For Release: September 15, 2017
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Governor Brown signs department-sponsored bill giving seniors more protection when surrendering annuities
AB 1398 adds protections to avoid investment losses through delays in processing surrenders

SACRAMENTO, Calif. — Governor Jerry Brown has signed Assembly Bill 1398 (Kalra), which protects annuity owners from losing investment value if insurers delay processing annuity surrenders.

The bill, sponsored by the Department of Insurance and authored by Assemblymember Ash Kalra (D-San Jose), addresses a problem identified by department market conduct examiners who noticed delays with some insurers between the date an annuity surrender request was received from a consumer and the date the insurance company processed the request. The delay, in many cases, led to a reduction in the value of fixed-indexed annuities, the value of which are tied in part to a stock market index (e.g. Nasdaq, NYSE, S&P 500). In one case a consumer lost $22,000 because the insurer delayed processing the annuity surrender and a drop in the stock market index reduced the value of the annuity.

AB 1398 solves the problem by requiring insurers to value the surrender of a fixed annuity on the date the surrender request is received and then process the surrender as expeditiously as possible, but no later than 45 days from the date the surrender request is received. The bottom line is the value of the annuity is made on the date the consumer submits the surrender request. AB 1398 makes this industry best practice law.

"This bill protects consumers from potentially costly delays when surrendering an annuity," said Insurance Commissioner Dave Jones. "Without these protections, seniors and others who rely on annuity investments to prepare for retirement might lose a significant amount of their investment upon surrender. I thank the Governor for signing this reform measure and Assemblymember Kalra for championing it in the Legislature."  

Under current law, insurers are not required to use the date a surrender request is received for valuing the surrender of non-variable annuities. Annuity funds left to sit following the receipt of the contract owner's request to surrender, and subsequently cashed out at a later date of the insurer's choosing, may be greatly reduced by hundreds, if not thousands, of dollars. This loss of value may be in addition to the potentially significant surrender charges and penalties applied.

"As annuities gain in popularity and the amount of cash surrenders are likely to increase, it is critical we have strong consumer protections against unnecessary, unfair, and unexpected financial losses," said Assemblymember Ash Kalra. "I am pleased Governor Brown signed AB 1398 into law so that consumers, especially our growing senior population and others who rely upon these investments to prepare for retirement, can rest assured that annuities will be better protected going forward."

The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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