A California-based consumer group, Consumer Watchdog, has filed a class-action lawsuit in Los Angeles against Transamerica Life Insurance Company for the COI increases we have witnessed in the past year. According to information gathered from the organization’s website, “Transamerica breached its contract and acted in bad faith by raising the charges as a pretext to avoid or offset its obligation to pay guaranteed monthly interest payments to the policyholders. According to the complaint, because people are now living longer, the cost of insurance under the policies is lower than when the policies were issued; yet Transamerica is attempting to collect increased monthly deductions from the policyholders.”
As we explained in our October 2015 webinar on the current assumption universal life cost increases (https://www.itm21st.com/Education/PastWebinars), Transamerica was effectively guaranteeing a 5.5% crediting rate on some universal life policies. The lawsuit alleges that Transamerica raised the COI on policies, “falsely stating that the increase was permitted by the terms of their policies.” The suit alleges that the COI increase was not about increasing mortality costs; “Transamerica’s true reasons for the premium increase were 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.” According to the suit, Transamerica is trying to “avoid its contractual obligation to meet the high interest crediting rates it promised.”
It is interesting to note that the initial plaintiffs listed in this suit were subject to an approximately 38% rise in the COI in their policy, a $250,000 “Trans Max” universal life policy issued in December 1990. The last policy that I reviewed from Transamerica was subject to a COI increase of almost 100%. (See: Transamerica Cost Of Insurance Increases: Is the Other Shoe Now Dropping? )
The suit points out that in its reports and answers to regulators, Transamerica never mentioned any “adverse changes in its current expectations regarding future costs of insurance,” and, further, that Transamerica’s investment returns are “nowhere near the returns needed to support continued interest credit to the Policies’ accumulation account at the guaranteed 5.5% effective rate.” The suit goes on to say that since non-guaranteed elements such as the COI “are required to reflect expectations of future [emphasis theirs] experience, Transamerica is precluded from redetermining those elements to recoup past losses. To do so would violate the actuarial standards of practice and code of professional ethics.”
The lawsuit alleges that Transamerica increased the costs to “force its insureds to surrender [cancel] 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 policies that were cancelled or surrendered.
ITM TwentyFirst manages hundreds of Transamerica policies and will be monitoring the outcome of this lawsuit and providing updates on this and other COI increase news.
For a copy of the lawsuit, email [email protected]