Once again, the insurance companies are being sued. This time Minnesota suing American Equity Investment Life Insurance Company, over Equity Indexed Annuities (EIA). In January Minnesota sued Allianz Life Insurance Company over EIA contracts.

Once again insurance companies are pushing sales people with bonus commissions and other perks. I can remember one company that visited my office long ago and was pushing 110% commissions and if you sell 5 you get a free cruise. Tell me that does not stink of something being wrong.

Insurance companies remind me of the wirehouses of yesterday. Sell the hot stock and get an extra commission (yes I did some time in a wirehouse). Of course this little penny stock is suitable for your 80 year old retiree. Now it’s; of course this EIA with a 5 year withdrawal penalty is suitable for your retiree. There is no downside, they can’t lose money.

The fact that they can’t really get to their money is immaterial, so is the fact that their withdrawal will be taxed as ordinary income. How can these guys sleep at night? I guess it’s easier to sleep on a comfortable cruise ship.

The real question is how are these guys still in business? How has the government not taken action against these crooks and shut them down. They take advantage of the complexity of the investment and the lack of knowledge of the investor. More disclosure is not the answer, a simpler product with reasonable fees is the answer. Forget lawsuits, put people in jail and close down companies.

All companies are in business to make money, including insurance companies. Heck even non-profit credit unions are in business to make money. It’s a question of how much money is reasonable to make off of a sale. I don’t know who would get to decide what is reasonable but maybe the answer is not in the reasonable area, it’s in the complexity.

A stock for example is simple, if it goes up you make money if it goes down you lose money. An EIA is tied to an index, it should be getting the returns of the index as published in common sources. Don’t let the insurance company come up with five pages of disclosure to explain that they don’t include reinvested dividends and use prices from some unrecognized source. The government agencies should protect the investor not the insurance companies.

I am tired of our industry selling snake oil and constantly being hammered by the media. No one trusts our industry, it’s like car sales and its getting embarrassing. When these guys sell unsuitable products, put them in jail and bar them for life. It can’t be just the reps though, it needs to be the insurance execs as well.