What does 2009 hold for the index annuity industry? Here are some likely possibilities.
Regulatory changes. From a sales and marketing perspective, such changes are in the IA industry’s best interests. For instance, I just reviewed a policy filing with a 25% bonus on the benefit base of the guaranteed lifetime withdrawal benefit; regulatory guidance will definitely be needed on marketing such products.
Some changes to expect concern training on index-linked products. Count on more states making a continuing education requirement on IA sales, similar to regulations put out by the state of Iowa-i.e., any producer selling indexed life or annuities in that state must pass 4 hours of generic/non-product specific IA and IUL training.
However, a number of states will consider requiring more than 4 hours of CE on those products-to make absolutely sure that all sales in their states are suitable.
Some states will also begin requiring product training to be the responsibility of the insurance carrier, or that it must take place with a carrier-appointed monitor. Why? This means major changes are afoot for the independent marketing organizations, which have traditionally handled the bulk of indexed product training.
As a result, compensation arrangements may need to be adjusted, and product development may evolve to even simpler designs.
Also in 2009, consumer-signed annuity illustrations may become a requirement in various states. This is something that has not been suggested by the National Association of Insurance Commissioners, Kansas City, Mo. But now, because of the much publicized calls for, and need for, greater disclosure, these projections of policy values may become a routine part of the business.
In that case, if the consumer-oriented materials do not make it exactly clear how much value the customer will take away upon cash surrender, the illustration will make it abundantly clear. Annuity professionals should plan on learning new software, should this be the case.
Also count on additional states adopting annuity suitability regulations. Among the 38 states already using a suitability regulation, expect some to make modifications of the current regulations. The goal here will be to ensure zero consumer complaints, that all T’s will be crossed and all I’s dotted.
Product innovation. It may seem that insurance carriers have already gotten creative with their indexed annuity designs, but they haven’t even started.
In the next 12 months, additional carriers will roll-out premium bonus products using vesting schedules and recapture charges. This enables them to keep surrender charges relatively low, and share the risk of offering a higher bonus with the consumer.
Additional bonus designs will emerge which credit a bonus to the benefit base of the GLWB, rather than to the contract’s account value. Although annuitants cannot receive this bonus upon cash surrender, these designs will increase the value upon which their guaranteed withdrawal payments are based.
Other innovations will include an increase in the number of guaranteed minimum death benefit riders for indexed annuities as well as new crediting method designs.
A response on proposed Rule 151A. The Securities and Exchange Commission, Washington, D.C., did hold its promised December 17, 2008 meeting on this controversial rule and did vote to reclassify index annuities, effectively making them securities. The SEC announced that the rule would go into effect on January 12, 2011.
At this writing, it appears that numerous carriers will band together to challenge the SEC’s action in court. Their main argument will be that there is already legal precedent establishing that these products are insurance contracts, not securities.
Lawsuits. There will be a variety of other lawsuits in 2009, as has become customary in the insurance business. Although the industry strives for 100% satisfaction, suitability issues seem to keep some in the business busy sorting out conflicts in the legal system. But in 2009, the lawsuits to watch will be carriers filing suit against the SEC.
Sheryl Moore is president and chief executive officer of AnnuitySpecs.com, an indexed product resource in Des Moines, Iowa. Her e-mail address is sheryl.moore@annuityspecs.com