September 26, 2024

Warren Releases Findings of Investigation Into Insurance Industry Kickbacks Costing Americans Billions of Dollars

New report reveals insurers’ ongoing abuse of luxurious travel incentives to pay off conflicted financial advisers: trips to Cancun, lavish cruises, and more

Department of Labor rule to end kickbacks set to go into effect this week, but delayed by industry groups and extremist court

Text of Report (PDF)

Washington, D.C. – Senator Elizabeth Warren (D-Mass.) today released a new 22-page report detailing the findings of her investigation into insurance industry kickbacks. The new report revealed trips to Cancun, luxury cruises on the Danube, a five-star resort in Mexico, and more extravagant incentives offered by insurance companies to employees in exchange for promoting plans that may not be in the best interest of their clients. 

A Department of Labor rule issued to end the kickbacks was set to go into effect this week, but has been delayed by industry groups and an extremist 5th Circuit Court ruling that put retirement and annuity industry profits over American families.

In April, the Department of Labor issued its “Retirement Security Rule,” which requires financial advisors to always make recommendations in their client’s best interest. Shortly after the rule was issued, Senator Warren launched an investigation into the prevalence of perks and kickbacks in the annuity and insurance industry, requesting information from the country’s 15 largest annuity companies regarding their use of the harmful tactic. This week, in conjunction with what should have been the first week of the DOL rule’s implementation, Senator Warren published the findings of her investigation in a new report.

The report’s key findings include:

  1. Kickbacks are still used by at least 29 companies to pay off conflicted advisors, including: a week-long escape to “one of the most privileged locations on the white sands of Punta Cancun,” a “luxury Danube river cruise,” and an extra $4,500 bonus for issuing three “cases” of a given product.
  2. Insurance companies are using third party “Sales and Marketing Organizations” (SMOs) and “Field Marketing Organizations” (FMOs) to dodge responsibility for these unethical practices.
  3. Current National Association of Insurance Commissioners’ (NAIC) and SEC standards are not sufficiently protecting consumers.
  4. Companies hide behind inadequate disclosures to deflect accusations of conflicts of interest.

The bad advice incentivized by industry kickbacks causes Americans to lose billions of dollars yearly on low-quality or high-cost investment products pushed onto them by conflicted advisers. As the new report notes, “conflicts of interest among advice providers cost retirement savers as much as 20 percent of their retirement income over a lifetime, and conflicted advice on fixed-index annuities alone cost savers as much as $5 billion every year. As a result, retirement plan participants would save $55 billion over the next decade in fees with the implementation of the DOL’s new rule, and “investors rolling over into annuity products could save another $32.5 billion over the same period.”

“These secret kickbacks hurt consumers by incentivizing agents to sell certain products because they will earn a bigger cash bonus or fancier vacation, not because they are in the best interests of their customers,” the report notes. Clients are not aware of these illicit incentives, meaning they believe their insurance agent is working for them when, in reality, the agent is working to score their own rewards.

Senator Warren is a longtime proponent of strong conflict of interest standards:

  • In April 2024, Senator Warren wrote to the country’s 15 largest annuity companies, criticizing their opposition to the Department of Labor’s (DOL) Retirement Security Rule and revealing their use of secretive incentives and perks to agents in return for steering consumers toward their products.
  • In March 2023, Senator Warren released a report, which uncovered the pervasive, secret rewards of lavish vacations, cash bonuses, and other incentives that giant insurance companies participating in the Medicare Supplement Insurance (Medigap) market offer health insurance agents and brokers.
  • In April 2022, Senator Warren sent a letter to CMS, highlighting concerns about overpayments to Medicare Advantage plans that line the pockets of big insurance companies and urging CMS to mitigate the announced payment increases so they are on par with payments to Traditional Medicare. 
  • In January 2017, Senator Warren asked 33 financial institutions whether they supported a roll back of the financial advisor conflict of interest rules, and in September 2017 invoked statements from CEOs that the rule was in the best interest of their customers, while urging then Labor Secretary Alexander Acosta to avoid further delay and implement the new rules.
  • In September 2016, Senator Warren and then-Chairman of the House Education and Labor Committee Congressman Bobby Scott (D-V.A.) released a Government Accountability Office study that underscored the importance of working people having sound investment advice that is in their best interest.
  • In April 2016, Senator Warren publicly advocated for the tougher fiduciary rule in a Huffington post op-ed with Senator Cory Booker (D-N.J.) to argue the urgent need for the reforms.
  • In October 2015, Senator Warren released the findings from an investigation into how perks and kickbacks create conflicts of interest in the annuities industry that showed 13 of the 15 leading annuity providers offered their agents lavish, secretive kickbacks for sales to often-unwitting purchasers, including all-expenses-paid vacations, iPads, professional sports tickets, and more, creating perverse incentives for broker-dealers to sell whatever products reap them the greatest personal reward, even if it comes at the expense of peoples’ savings. 
  • In September 2015, Senator Warren called out Brookings Non-Resident Fellow Robert Litan for his work backed – financially and editorially – by those same special interests opposing the reforms. Litan had testified before Congress in 2015 about a study he authored asserting that the DOL Fiduciary Rule could cost consumers $80 billion, a figure the financial industry amplified in their own arguments against the rule. 

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