Some regulators are asking whether they should be talking about minimum annuity nonforfeiture interest rates at a time when some older consumers are buying contracts with 25% surrender charges.[@@]
During a discussion here of the Annuity Nonforfeiture model regulation at the summer meeting of the National Association of Insurance Commissioners, Utah regulator Tomasz Serbinowski said regulators should be looking at the sale of annuities with an initial 20% bonus and a 25% surrender charge rather than at the minimum nonforfeiture rate.
“I don’t believe consumers are really served by that charge,” Serbinowski said. “A major consumer protection should be controlling and limiting surrender charges.”
The remarks were made following a debate over whether to scrap an index rate in favor of a single interest rate.
A motion for a simpler approach sparked questions from regulators about what interest rate would be used.
The motion ultimately failed by a vote of 5 to 6, with 3 abstentions.
After the vote, Jim Van Elsen, an actuary with Van Elsen Consulting, Pella, Iowa, said regulation should be accompanied by disclosure. “Most of the annuities with long-term surrender charges are being sold to seniors who do not have long-term horizons, and that is wrong,” Van Elsen said.