Two index annuity experts walked a room packed with attendees of the spring meeting of the National Association of Insurance Commissioners through the intricacies of the product and then fielded their questions.
The seminar was sponsored by the Iowa and Minnesota insurance departments. The panelists were Jack Marrion, president of Advantage Compendium, St. Louis, and Noel Abkemeier, a principal with Milliman USA’s Chicago office.
One attendee 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 that it seems most problem sales seem to be in the 70-85 age range and in some cases, all the senior’s money is being moved into these contracts.
Marrion responded that his research suggests the average age of those who buy these products is 62.48 years old.
One possible explanation, according to Abkemeier, is that insurance departments are sometimes viewed as complaint departments, and regulators are more likely to hear of a problem situation, which creates a “limited picture.”
While surrender charges for certain products can be high, he said, investing in an index annuity should be viewed as a long-term investment. 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 that 62 of 250 products have some type of condition associated with the bonus. The bonus is just one way of offering to the client what is set aside for the client, Abkemeier said.
On the issue of how index annuities are sold, one attendee, who declined to be identified but whose company is a writer of indexed annuities, asked whether a security product has a 30-day free look like an insurance product does or whether a mutual fund with a high load that is sold to an 85-year-old person is subject to the same regulatory requirements as an indexed annuity.
A Market Snapshot
–Sales totaled $27.26 billion in 2005.
–The top five carriers had two-thirds of sales and the top 10 carriers had more than 80% of sales.
–Thirty-six carriers moved in and out of the market.
–Nineteen new products entered the market in February for a total of 250 products.
–90% of products were sold by independent insurance producers, 4% by captive producers, 4% by banks and the remainder by wirehouses.
–3% of commissions are double-digit and the majority of them are in the 6-9% range.
Source: Jack Marrion, president, Advantage Compendium, St. Louis