State warns about misleading insurance ads
September 24, 2014 by Matthew Patane
Iowans looking at annuities and other insurance products should be wary of potentially deceptive advertisements, a state agency said this week.
The Iowa Insurance Division has seen more marketing companies that work with insurance firms use misleading ads to try to attract customers, the division said in a bulletin.
Those ads, the division said, give a false sense of the payout consumers could receive from products such as annuities, which provide a steady stream of income after an initial investment period.
“If it’s not properly explained, you’re going to create an expectation that will not be met,” said Doug Ommen, Iowa’s deputy insurance commissioner.
For instance, a company may use the term “uncapped” to describe the rate of return from an annuity.
However, with indexed annuities, which follow the stock market or other indices, the rate of return is capped at a certain percent, such as the level of interest rates.
Since interest rates have been at historic lows, some companies have started redefining how they measure rates of return to attract more customers, said Sheryl Moore, the president and CEO of Moore Market Intelligence, an insurance research firm in Pleasant Hill.
Using language that exaggerates future payouts is misleading, Moore said.
“It’s disingenuous to give anyone the impression that there is potential for unlimited growth in the product,” she said.
The Insurance Division said it also has seen some companies create “hypothetical indices” for marketing materials. Those indices are then backcasted to a time when the stock market had a strong growth period.
Use of such language, the division said, increases the chance of consumers not understanding how future rates of return will be calculated. It also increases their expectations for higher payouts that may never become reality.
Moore said consumers should look closely at insurance products they are thinking of buying.
“You should just know that, in regards to indexed annuities, that if someone is proposing (unlimited returns) you should probably run the other way and find a different adviser,” Moore said. “If something sounds too good to be true, it probably is.”
The Insurance Division has been watching the state’s insurance market for such ads during the past year, Ommen said.
He said fines for violations typically start at $1,000, but can rise to $5,000 per violation. The Insurance Division has opened a number of investigations, but has yet to issue any fines, he said.