Four Ways AmGen Allegedly Cheats California Life Insurance Policyholders

American General Life Insurance Co. cheats California policyholders by imposing lower interest rates than set forth in the policy, a class action lawsuit alleges.

The AmGen class action lawsuit was filed in December 2020 on behalf of all current and former owners of American General Life Insurance policies in California that include policy terms stating that any redetermination of interest rates will be based “only on expectations of future investment earnings.”

AmGen allegedly intentionally violates these life insurance policy terms by failing to increase credited interest rates when AmGen’s earned rate expectations increased.

AmGen’s practice of crediting artificially low interest rates allegedly enables it to improperly make money in at least four ways: it retains the difference between its earned rate and credited rate, it avoids payment of persistency bonuses, it increases the premium charges it collects, and it induces lapses and surrenders of policies. 

Improperly Retaining Difference Between Earned and Credited Interest Rate

Plaintiff LSIMC LLC says it has owned an AmGen life insurance policy issued in California since Feb. 20, 2010. The policy’s terms reportedly guaranteed a minimum credited rate for the account value of 3 percent, but stated the interest rate would be redetermined at least annually to reflect the current rate of return AmGen expected to earn. 

Most insurers that are about AmGen’s size have projected earned interest rates between 5 percent and 6 percent in the last four years, the American General Life Insurance class action lawsuit says. AmGen allegedly under-credits the interest rates on account values and retains the difference between the earned rate and interest rate.

Avoiding Payment of Persistency Bonuses 

The plaintiff’s policy also reportedly included a “persistency bonus,” which would increase the interest rate after the policy had been in force for five years.

“For many AmGen policies, the current interest bonus applies only if AmGen’s declared annual interest rate at the end of each month is greater than the guaranteed minimum rate,” the AmGen class action lawsuit states. “So when AmGen redetermines credited rates at guaranteed minimums, it avoids the obligation to pay persistency bonuses.”

LSIMC alleges AmGen intentionally targets policies with persistency bonuses by keeping the interest rates low in order to avoid paying the bonuses.

Increasing Premium Charges

By under-paying the interest rates on account values, American General Life Insurance policyholders end up paying more for their premiums, LSIMC alleges in the AmGen class action lawsuit. 

The excess amounts in the account value earn interest at the credited rate, which helps to fund the cost of insurance and reduces the amount of premiums the policyholder will ultimately have to pay. By keeping the interest rates artificially low, the account value does not increase as much as it should.

“So, the less interest that accrues, the more premium charges AmGen collects, and the higher AmGen’s profit margins,” the AmGen class action lawsuit explains. AmGen’s premium charges are reportedly around 7 percent.

Inducing Lapses and Surrenders

Another alleged result of AmGen’s conduct is to induce lapses and surrenders of life insurance policies, which enables AmGen to retain all COI charges, premium charges, and other fees. It also avoids ever having to pay death benefits.

“By crediting less interest than required, AmGen is forcing policyholders to pay more and more money to keep their policies in force,” the AmGen class action lawsuit states. “This has the direct and intended effect of causing policyholders to lapse or surrender their policies, resulting in even more profit for AmGen and its shareholders.” 

LSIMC is represented by Steven Sklaver, Ryan C. Kirkpatrick and Seth Ard of Susman Godfrey LLP.

The AmGen Life Insurance Class Action Lawsuit is LSIMC LLC v. American General Life Insurance Company, Case No. 2:20-cv-11518, in the U.S. District Court for the Central District of California, Western Division.