Ohio National officially broke service contracts today on variable annuities with a specific guarantees, never backing off the precedent-setting decision despite a torrent of criticism (and lawsuits) from the producer side.
Trail commissions stopped today for any producer who sold a VA with a guaranteed minimum income benefit rider. The company has been sued twice so far by broker-dealers in federal court.
That the court declined to issue any ruling prior to today’s deadline is irrelevant, said Dennis J. Concilla of Carlile Patchen & Murphy, one of the attorneys for broker Lance Browning. The Texas-based Browning filed a Nov. 6 lawsuit, charging Ohio National with “trying to change the rules after the game has already started.”
Browning stands to lose $89,000 in trail commissions, the lawsuit claims. “There’s no particular urgency for us,” Concilla said, adding that lost commissions can be paid now or recouped later via a court victory.
“We believe that these agents, not just our clients but agents across the country, are entitled to this compensation and the contracts are very clear that they can’t just arbitrarily stop paying it,” he said.
Since the announcement, Ohio National has agreed to strike language waiving the right to contest any contractual changes from new agreements with producers, Concilla said. “That’s been an important development.”
Ohio National does not comment on active litigation, a spokesperson has said.
The Sept. 28 announcement by Ohio National crossed a line that many in the industry did not think would be crossed.
It raised many questions for producers: Would other insurers follow suit? How would clients be serviced? Is the commission business model threatened?
Earlier in September, then-chief operations officer Christopher Carlson announced that Ohio National would no longer accept any annuity applications. The insurer is focusing on life insurance and disability insurance, a spokeswoman has said.
With interest rates remaining at or near 0 since the 2008 financial crisis, insurers have struggled to meet the benefits promised by VAs sold prior to then.
Few in the industry are sympathizing with Ohio National’s decision.
“Needless to say, no one is happy with Ohio National and many have vowed to give them no business of any kind,” said Larry Rybka, president and CEO of Valmark. “The decision to not pay producers is deemed as huge breach of trust.”
In addition to its decision to stop paying trail commissions, Ohio National followed up with an Oct. 29 email to clients offering a buyout of the VA contracts with the GMIB rider.
Ohio National distributes life and annuities through an independent producing general agent channel with about 11,000 agents, and through a career agency channel with about 4,000 agents, the company said. Career agents are apparently unaffected by the decision to stop paying trails on VAs with a GMIB.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org.
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