Legislation pending in two states could have a significant impact on annuity sales by tightening rules surrounding the sale of annuities to older Americans.
In Florida, lawmakers were contemplating extending the free-look period for annuities to one year for consumers age 75 or older (SB 2082).
In Connecticut, a pending bill (SB 155) prohibits the sale of all variable annuities to any resident age 65 and up. The draft language illustrates what many consider to be extreme measures taken by legislators to curb financial abuses.
Some of this reflects how the legislative process works. In states, bills are usually drafted by legislative staff members or government agencies. But insurance legislation often starts with a constituent contacting a state representative, to bring a negative personal experience to the attention of lawmakers. If it happened to them, they reason, it’s happened to others. Missing is acknowledgement that addressing a single voter’s problem does not necessarily make good law for the masses. In law school, students are often taught that bad facts create bad laws. Such is true for insurance regulations.
Since each insurance sale is particular to the individual, the challenge, when drafting laws around a single specific situation, is to keep the legislation from becoming too narrow, too focused and too exclusionary.
Let’s apply this to the new proposals. Both contemplate restricting the sale of annuities based solely on age.
Such a restriction is concerning. It is widely known that Americans are living longer than previous generations and that, accordingly, retirement savings will need to last longer. Annuities were designed to create an income stream that annuitants cannot outlive, an increasingly important factor now that defined benefit pensions are alarmingly underfunded and rarely available through employers. So, the ability to use annuities for guaranteed retirement income is critical, yet legislation is seeking to restrict availability of annuities to older Americans. It’s a catch-22.
Restricting sales based on age is not a new concept. Individuals older than age 65 have been a legally protected class, not just for insurance sales, for decades.
Heightened protection for those over age 65 is considered good public policy. Remember in 2003 when the National Association of Insurance Commissioners initially adopted its “senior” suitability model? It applied to annuity sales made to those aged 65+. By 2006, the age restriction was removed making the annuity suitability model applicable regardless of age. This change is noteworthy considering the behavior the regulations attempt to curb.
It is clear that abusive insurance sales practices are not limited to transactions with those ages 65 and older.