U.K.- Based Aviva Promises To Compensate Victims of Annuity Calculation Error

A recent investigation conducted by the U.K. news publication The Telegraph revealed that the British insurance company Aviva shortchanged about 250 customers who bought annuities; Aviva is now stating that there was an error in sales calculations, and that the company plans to compensate every customer affected by the mistake.

Because an annuity functions like a regular paycheck for retirees — i.e., it provides a regular income for people after retiring — it is usually intended to last for many years, if not for the person’s remaining lifetime. The cost and value of an annuity, therefore, is based on multiple factors regarding the person’s health history, current health status, and changes in rates and inflation.

The recent investigation uncovered that Aviva sold annuities in 2013 that didn’t accurately reflect the health statuses of 250 separate customers. All of these customers had poor health conditions, such as diabetes, high blood pressure, and a history of smoking, which often contribute to shorter lifespans.

Normally, when an annuity is concerned, the seller will offer a better annuity package if the customer is predicted to have a shorter life expectancy. In this case, Aviva should have offered its 250 customers an annuity that guaranteed regular income for life, based on its own customer policies.

The Telegraph noted that, based on previous studies, about 60% of Aviva’s eligible customers should have been given lifetime annuity plans automatically; in reality, Aviva has only given extended annuities automatically to about 7% of its eligible customers.

This isn’t a rare occurrence, as many people are finding out. Although quite a few people are eligible for lifetime annuities, it’s estimated that only one out of every four eligible people actually have these annuities.

It comes as no surprise that Aviva has decided to compensate each of its 250 customers, and to make the compensation announcement very public. Even though the company is Britain’s largest insurer right now, and even though most annuity owners are fairly loyal to their seller — with over 90% of annuity owners stating that they still own their first annuity — Aviva could have even more problems down the road if the issue isn’t addressed swiftly. Economic experts are already predicting that a “floodgate of claims” could appear, as more people realize that they’ve been shortchanged by their annuity sellers too.

Unfortunately, Aviva’s mistake can’t be solved with simple financial compensation, since quite a few affected annuity owners have already passed away. It’s likely that the company’s “error” will be investigated thoroughly, since a “mistake” of that gravity is not likely to go unnoticed for well over a year. However, perhaps the silver lining in this situation is that annuity owners across the globe are paying attention and are taking a second look at their own financial plans.

Leave a Reply