Two equity indexed annuity experts walked a room packed with attendees of the spring meeting of the National Association of Insurance Commissioners through the intricacies of the products.
The session was sponsored by the Iowa and Minnesota insurance departments, which are home to carriers that offer the product.
Fixed index annuity sales have grown from around $1 billion in 1995 to $27.3 billion in 2005, according to data provided by Advantage Compendium. But, as Jack Marrion, president of Advantage Compendium, explained, the fixed index annuity is “still a mosquito bite on the elephant hide of the annuity world.”
Marrion offered a picture of the market in which the top 5 carriers had two-thirds of sales and the top 10 carriers had over 80%. But it is not a consistent market, as evidenced by the fact that 36 carriers have moved in and out of the market, he added. Most left because they were not big enough or because they were involved in a merger or acquisition.
If the number of carriers fluctuates, the number of products do also, according to Marrion. He noted 19 new products entered the market in February for a total of 250 products.
Ninety percent of products were sold by independent insurance producers, 4% by captive producers, 4% by banks and the remainder by wirehouses, he said. The commission charges for these products are “distribution driven,” since independent producers must shoulder their own operational costs, he added. But even so, reports of the 15% commission are greatly exaggerated, Marrion said. Only 3% of these products are double-digit, with the majority in the 6% to 9% range.
During a question-and-answer session, the panelists were asked what should be the maximum age for selling these products and the maximum percentage that should be put into an annuity vehicle for savings.
A representative for the Wisconsin insurance department said it seems most problem sales seem to be in the 70 to 85 age range and in some cases, all the senior’s money is being moved into these contracts.
Marrion added his research suggests the average age of those who buy these products is about 62.5. “I understand the concern, but I don’t know how to address it,” he added.
One possible explanation, according to Noel Abkemeier, a principal with Milliman Consultants and Actuaries, is that insurance departments are sometimes viewed as complaint departments. Regulators are, therefore, more likely to hear of a problem than of a customer’s satisfaction, creating a “limited picture,” he suggested.
While surrender charges for certain products can be high, investing in an index annuity should be viewed as a long-term investment, he said. The product offers a death benefit without a surrender charge, so that is not an issue, he added. So, selling at an advanced age is not inherently bad, according to Abkemeier.
Brian Atchinson, executive director of the Insurance Marketplace Standards Association, Washington, asked the panelists about bonuses in the products with strings attached. Marrion responded 62 of 250 products have some type of condition associated with the bonus.
When Atchinson pressed the panel about training for suitability and needs-based selling, Marrion noted some carriers do a wonderful job training their producers.