Two lawsuits were filed one day apart last week against AXA Equitable Life Insurance Company for cost of insurance (COI) increases in its AXA Equitable Flexible Premium Universal Life Athena II policies. We “looked under the hood” of the AXA policies affected by these cost increases back in November of 2015. The increases were limited to those policies originally issued to people age 70 and above with a policy face value amount of $1 million or more, which factored into the substance of both lawsuits. There are now at least three lawsuits filed against AXA, including one we wrote about back in February of last year.
The first suit, filed January 18 in Arizona (Wenokur v AXA Equitable), accuses AXA of “improperly targeting a subset of policyholders who exercise their contractual rights to keep their accumulated policy account values as low as possible and pay flexible premiums.” According to the suit, the “exorbitant” cost increases were designed to force policyholders to “take one of two unsavory courses of action”; either pay increased premiums that the carrier “knows would no longer justify the ultimate death benefits” or surrender or lapse their policies.
Though AXA stated the increase was “warranted” because “affected insureds are dying sooner than AXA anticipated,” the suit points out that in a regulatory filing in February of 2015, the carrier answered no to the question asking whether its “anticipated experience factors underlying any nonguaranteed elements [are] different from current experience,” and also pointed out that “mortality trends for the affected insureds have improved substantially since the time the policies issued.”
The lawsuit states that AXA “violated the terms of the policies” by “targeting only a subset of a risk class” and by basing the increase on unreasonable assumptions, breached the contract. Though AXA based the increase at least partly on expectations of “investment experience” in the future, the suit points out that investment experience is not a listed factor that may be considered for increasing COI rates, though “investment income” is, but “even if AXA’s investment income has changed, this factor cannot justify inflicting a COI increase solely on the subset of AUL II policies upon which AXA has sought to impose the COI increase (those with higher issue-ages and face-amounts).”
The second suit (Hobish v AXA Equitable), filed the next day in the Supreme Court of the State of New York, accuses AXA of “breach of the terms of the policy, deceptive business practices, and excessive, unconscionable and unlawful premium increase.”
The insured was issued the policy at a standard nonsmoker rating class. According to the suit, the policy contract stated that any changes to interest rates, charges, or other deductions would be on a “basis that is equitable to all policyholders of a given class.” When contacted by the insured, the carrier stated the cost increase would apply only to a class of insureds “with issue age of 70 and above and with a face amount of $1 million and above.” According to the lawsuit, nowhere was that class identified. The only policy class that was identified was the insured’s rating class of standard non-smoker. “Nothing in the policy permits AXA to imposed a COI increase based on the issue age or face value of the policy,” according to the suit.
The lawsuit also accuses AXA of deceptive business practices in violation of New York business law since they targeted consumers aged 70 and “misled” these consumers “into believing they would not be targeted for premium increases” that were “not applied generally and equitable to all members of a designated class.”
The suit cites the “predatory increase” in the cost of the policy as a “flagrant tactic to increase revenues and to drive aging individuals out of their policies.” In this case, the plaintiffs surrendered the policy on the insured, then age 92, “under protest” four months after the cost increase took effect. They received $412,274 as surrender value for the $2 million policy, after funding the policy with a total of $913,804 in premium payments.
For copies of both of these lawsuits, email mbrohawn@itm21st.com
[…] The 35-page document expands and adds to the original 18-page Class Action Complaint filed February 1 of last year, and follows on the heels of two unrelated lawsuits filed against AXA last week. […]
Hello Michael,
The time-frame, age bracket, face amount minimum, and the (long discontinued) Athena UL II product all smack of SOLI, IOLI, as well as more conservative versions of financed life insurance in which the UL II product was heavily utilized. AXA wrote a great deal of this business, then their software magically changed so minimum premiums could not be solved as before. Soon afterwards the product was abruptly withdrawn and replaced by a more expensive UL with traditional cash value levels which would be much more difficult to sell on the secondary market.
As already clarified in multiple lawsuits, increased mortality was not a valid reason for increasing premiums. Conversely, an abnormally large book of 70+ issue age business (part of which serves as equity for premium lenders) from back in the “buy now and sell for a profit in 2 years” days will never be allowed to lapse, has already lowered historic lapse ratios, and will definitely be kept in-force to pay a claim versus AXA’s desire for them lapse. The same goes for Phoenix and some other carriers. John Hancock (for one) did not venture into that shark feed, lost market share at the time by rejecting such business, but is far better off today by having abstained.
Due to the large amount of financed business through AXA and certain other carriers, I am surprised premium lenders such Credit Suisse, PFG, etc. have not also become involved due to their increasing premium requirements — and perhaps they have behind the scene(s).
Due to the above, it could be considered odd why AXA did not attempt to create a class of financed policies, as those will most likely have a zero lapse rate and are a real problem they do not seem to admit. It might not have worked, but is more definitive than merely everyone 70 and over with $1m plus of coverage.