Sellers of the products formerly known as equity indexed life insurance and annuity contracts are trying to do a better job explaining their business to the public.
The National Association of Fixed Annuities, Milwaukee, has released a major “white paper” describing the products and their place in consumers’ portfolios, and NAFA members are working with the Insurance Marketplace Standards Association, Bethesda, Md., to develop standard rules for educating prospective purchasers of the products.
NAFA, which prefers to refer to the products as “fixed indexed annuities” and “fixed indexed life insurance” policies, recently held a press conference here to unveil the white paper and talk about why its members believe fixed indexed products can play an important role in improving Americans’ retirement income security.
In the past, “NAFA has sponsored educational conferences and responded to prevalent misinformation in many forums and publications,” NAFA Chairman Michael Tripses said at the NAFA press conference. “We have proactively disseminated information about fixed annuities to the media. However, we felt it was time to coalesce what we felt were all of the salient issues surrounding FIPs into one document which could be a resource for all of our publics.”
NAFA moved 7 months ago to commission Joan Boros, a NAFA director, to draft the white paper.
Boros, a partner at Jorden Burt L.L.P., Washington, worked on the paper together with Gary Cohen, another Jorden Burt attorney, as well as with Tripses, NAFA Executive Director Kim O’Brien and other NAFA leaders.
The authors write in the white paper about the value of fixed indexed products as vehicles for enabling retirement savers to share in some of the growth of the stock market without risking the kind of devastating loss of principal that hit some retirees in 2000 and 2001.
“Fixed indexed insurance products are nothing more than a traditional fixed insurance product that offers owners an opportunity, often on an optional basis, to receive interest based on positive changes in a financial markets index, coupled with insurance guarantees of purchase payments and minimum rates of interest,” the authors of the white paper write.
The authors deal with topics such as the need for FIA surrender charges; the differences between a fixed indexed annuity and an arrangement combining a zero coupon bond and an indexed mutual fund; and the risks and rewards of product flexibility.
Regulators at the U.S. Securities and Exchange Commission and the National Association of Securities Dealers, Washington, have argued in speeches that some fixed indexed annuities may be too complicated and too poorly explained to purchasers.
“All financial products are vulnerable to the contemptible tactics of the unscrupulous,” and the flexibility of fixed indexed products can lend itself to abusive sales practices, the authors of the FIA white paper write.
But the same flexibility can lead to many benefits for consumers when the products are properly explained and properly used, the authors write.
“Making sure the customer receives the proper disclosures at the point of sale is essential,” IMSA President Brian Atchinson said at the press conference.
Many companies have developed standard disclosure forms to help their sales staff provide this important information, and some groups have been exploring a universal disclosure form that could help standardize the information consumers receive, Atchinson said.
Atchinson noted that the Iowa Insurance Division has asked IMSA to help develop enhanced standards for the marketing, advertising, sales and customer service of indexed annuity products.
By the end of 2007, IMSA standards will cover about 60% of the FIA market, Atchinson predicted.