In the on-going struggle of carriers trying to cope with the low interest rate environment, another carrier is being sued for the way they are going about mitigating their risk at the cost of their clients.
ISN no longer represents Transamerica- but if you are currently writing with them you might want to read this article from Mike Smith.
Transamerica Hit With Class Action Law Suit Over Cost of Insurance(COI) Increase
Transamerica Life Insurance Co. has been sued for raising the cost of insurance on some universal life insurance contracts, an action plaintiffs allege constitutes a breach of obligations under the policies and has led to damages against contract holders.
The class-action suit, Feller et al v. Transamerica Life Insurance Co., filed in Los Angeles, comes as insurance companies have struggled under the burden created by persistently low interest rates, which make it more difficult for insurers to pay out claims on contracts with generous provisions inked during times of higher rates.
Last year, several other carriers that announced that they will increase COI’s on in force policies. Some of these increases appear to exceed 75% which will cause policies to lapse unless the policyholder is willing to substantially increase their premium payments. Even more disturbing, in Transamerica’s case, they also announced that they will not be able to provide in force illustrations projecting the long term effects of the increase. This position makes it almost impossible for a policyholder to assess the competitiveness of that policy and make decisions about the long term viability of their contract.
Plaintiffs in the Transamerica suit allege “Transamerica’s sudden and unilateral increase in the premiums required to keep these policies in force constitutes a breach of its express and implied obligations under the policies,” as well as a violation of California state law.
These cost increases began in August 2015, and relate to universal life insurance contracts sold in the late 1980’s and early 1990’s, many of which guaranteed an interest rate of no less than 5.5% annually, according to the complaint, filed Feb. 28, 2016.
Plaintiffs allege Transamerica raised monthly charges by 38%, “falsely stating” the firm’s increases were permissible under specific terms of the policies, when they were actually “to subsidize its cost of meeting its interest guarantee, to recoup past losses on the policies and on its investment portfolio, and to make the policies more profitable by inducing policy terminations by those policyholders who could not afford the increase,” the complaint says. According to other industry sources, this increase has been determined to be almost 100% increase in certain policies.
The lawsuit alleges that Transamerica increased the costs to “force its insureds to surrender their Policies” in order to “reduce the size of an unprofitable block of life insurance policies.”
The lawsuit is seeking a reversal of the COI increases as well as compensatory and punitive damages to be paid to the affected policyholders. In addition, the suit seeks the reinstatement of polices that were cancelled or surrendered.
We will keep an eye on this suit as well and update when we know more. These activities shine a bright light on the importance of periodically reviewing life insurance policies utilizing a knowledgeable and experienced Adviser.
Mike Smith is President of TFP Brokerage, a Charter Member of PolicyCheck and author of Tread Lightly, A Life Insurance Guide for the Affluent Client. He can be reached at firstname.lastname@example.org