Allstate Life Insurance Co. of New York admitted to violating a state rule by failing to tell customers shopping for replacement life insurance and annuity contracts about the risks and will pay an $18.25 million, the state Insurance Department said.

The company will pay $17 million in restitution to 6,500 current and former customers and a $1.25 million fine for the violations, which it said were not a part of any policy to dodge state insurance laws.

The Insurance Department said last week in a written statement that a review of the company found that it violated a rule that required it to tell consumers of the "potential pitfalls as well as the benefits of" replacing their life insurance or annuities with new policies or contracts. The regulation says an agent must provide a disclosure statement that is accurate and complete to any consumer thinking of making a switch.

The statement is supposed to show the similarities and differences between the consumer's existing contracts and policies and the policies and contracts the consumer is considering. The statement is supposed to specify the premiums, guaranteed interest rates, guaranteed values, loan interest rates and other details.

The department said it reviewed the practices the company had in place from 2001 to 2003. The department's disclosures during that period were sometimes "missing, incomplete or inaccurate," the department said.

The company also did not have the records it was required to have, the department said.

Allstate said in a news release that it has taken a number of steps to make sure it follows the rules. The steps include assigning more workers to record keeping and using new technology.

"We are making direct contact with our impacted customers of Allstate Life Insurance Co. of New York and are committed to the enhancements we have made to our processes," said the company, which is based on Long Island.

Allstate agreed to the state's findings and the fine.

State Insurance Superintendent Howard Mills said: "Consumers should have all the information they need to in order to make an informed decision. If that information is not being provided, the consumer is at a disadvantage, and this department will step in to make sure there is a level playing field."

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By ALLAN DRURY
THE JOURNAL NEWS

Reach Allan Drury at adrury@lohud.com or 914-694-5069.

Copyright 2006 The Journal News, a Gannett Co. Inc. newspaper serving Westchester, Rockland and Putnam Counties in New York.