The Iowa insurance department says it will take action to tighten oversight of index annuity products.
Index annuity products, commonly known as equity index products, have been garnering the attention of regulators, including the National Association of Securities Dealers, Washington, both for the way they are sold and for commissions associated with the products. In fact, during the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo., it was noted the NASD and the Minnesota Department of Commerce are planning a joint meeting on the issue in May, according to a discussion among state insurance regulators during a joint meeting of the Market Regulation and Consumer Affairs “D” Committee and the Life Insurance & Annuities “A” Committee.
As part of the spring meeting, an educational seminar sponsored by the Iowa and Minnesota insurance departments featured speakers including Noel Abkemeier, a principal with Milliman USA’s Chicago office, and Jack Marrion, president of Advantage Compendium, St. Louis, which drew about 250 participants. Iowa and Minnesota are interested in how index annuity products are sold because 67% of product issuers are from these two states.
The commissions associated with the sale of index annuity products are said to be as high as 15%, although Marrion noted during the seminar that only 3% of commissions are double-digit and the average commission is between 6-9%.
Among the steps the Iowa insurance department intends to take is to implement “promptly” the Senior Protection in Annuity Transactions model regulation, which may soon be extended to all consumers. The department also will implement a model focusing on annuity disclosures, according to Rosanne Mead, assistant commissioner-consumer affairs with the Iowa department.
Mead said that the Insurance Marketplace Standards Association, Washington, could play an important role in the new oversight, “but it is up to it. If there are meaningful sales practice standards and reporting guidance, there could be an opportunity to leverage state resources.”
One piece of Iowa’s new oversight will include specialized training for producers in this market, she said. That will include four hours of general training on the product with content in the course specified by the department. Once training is completed, a producer’s file would be flagged so that potential employers would be aware of that training. In addition, she said, company-specific training also will be offered, and carriers will be required to keep producers up to date on new products.
The Iowa department also will undertake department staff training and will make such training available at zone meetings or at specific state training sessions, Mead said. Colorado already has had such a session, she added. The department already has received commitments from carriers to provide trainers to help with this effort, she continued.
In addition, the NAIC’s Buyers Guide will be updated to reflect changes in the index annuity marketplace, and the Market Regulation Handbook will encompass changes being discussed.
And, according to Jim Mumford, first deputy commissioner with the Iowa department, the product will have to be referred to as fixed index annuities in all advertising and marketing materials.
Linda Lanam, vice president-annuities with the American Council of Life Insurers, Washington, says that the ACLI board is supportive of an extended suitability model and implementation of the annuity disclosure model. Many companies already are dropping the name of equity from index annuities, Lanam added. If that helps consumers to better understand that the product is not a security, then that is a good thing, she said.
Birny Birnbaum, executive director with the Center for Economic Justice, Austin, Texas, asked regulators why there was the sudden interest in scrutinizing the product. “What consumer complaints are causing you to want to take action?” he asked.
Mumford responded that the number of complaints is very low in Iowa: 26 for index annuities.
Iowa Insurance Commissioner Susan Voss said that “we are not saying that the sky is falling down.” But, she added, regulators want to take action and fix a potential problem at the front end rather than at the back end.
Others, including Brenda Cude, an NAIC funded consumer representative, and Gary Sanders, a representative with the National Association of Insurance and Financial Advisors, Falls Church, Va., expressed support for the effort.