It’s no secret that there are a lot of conversations taking place these days about the regulation of annuity products. Many of these discussions stem from some very pointed criticisms of annuities and, specifically, fixed index annuities, or FIAs.
Much of this talk has created a very unbalanced picture of FIAs. But it can also serve as an important opportunity to bring even more clarity to the industry and most importantly, for the consumer.
First, some key facts about FIAs. For more than a decade now, millions of Americans have been very satisfied with their FIA purchases and regard them as safe and valuable additions to their overall financial planning. The FIA business was started in the United States by just a few insurers in the mid-1990s. Today, there are 47 companies, with total annual premium of more than $27 billion.
The primary reason FIAs are so popular is that they represent an innovative idea for addressing emerging needs.
We all know that Americans are living longer than ever before. As longevity increases, so does the need to supplement other sources of retirement income like Social Security and pension plans. Today, more than ever, people are seeking safety, stability, savings, and income through tax-deferred growth. They value the opportunity to receive a guaranteed income for life.
FIAs address these needs by allowing the consumer to receive the guarantees of a traditional fixed annuity (as required by non-forfeiture laws) while providing the opportunity to receive interest credits based on the performance of a market index.
The journey that FIAs are on currently is similar to what happened with universal life. I’m sure many National Underwriter readers remember what the initial perceptions were of UL.
At the time, the life industry was dominated by whole life policies and companies wanting to protect the past. Ultimately, though, the industry, distribution, and the consumer came to understand the value of UL. This brought the product from “maverick” status to mainstream acceptance.
I believe the same holds true for FIAs.
I further believe the main cause of all of the critical rhetoric regarding FIAs today is not a function of the design of the product itself, but rather a lack of product knowledge by FIA critics and a limited number of highlighted cases where suitability is called into question.