While most of us in the industry have kept our eye firmly on SEC 151A, Sheryl J. Moore, president and CEO of Lifespecs.com and AnnuitySpecs.com, says we should be keeping an eye on Florida Senate Bill 1372 as well.
[Editor's note: Moore sent the following information to Senior Market Advisor regarding her thoughts on SB 1372.]
It has plenty of merit, but it also has the potential to be very damaging. Most notably, Florida regulators are attempting to limit surrender charges on annuities to five years, with a maximum surrender charge of 5 percent for consumers aged 65 and over.
According to the U.S. Census Bureau, Florida is the fourth most populous state in the nation, and the single most inhabited state for persons aged 65+. Nearly 20 percent of our country’s senior population lives [in Florida], which means that millions of seniors who need the safety and guarantees of annuities may soon lose access to these valuable products.
Why? The shorter the surrender charge, the lower the rates on the annuity. In addition, shortening the surrender charge means lowering agent commissions. Not to mention the fact that if surrender charges are limited to five years/5 percent, no premium bonuses will be available on these products, as you cannot price a bonus into a 5-year chassis. Independent agents and their field marketing organizations (FMOs) must receive enough compensation on the product to offset their costs, and make it worth their while — plus the rates on the product must be competitive with other safe money places (such as Certificates of Deposit). If the product cannot fulfill those needs, the product will not even be offered. Insurance companies distributing through independent agents will not take the time to develop such products.
To help you gain some perspective, the average indexed annuity today has a 10-year surrender charge, a 5 percent premium bonus, and pays 6.85 percent commission to the agent (this does not include overrides to the FMO).
Ultimately, if this bill passes, annuities will most likely only be available through banks and broker-dealers who will be inclined to sell competing products with higher rates and higher compensation (such as CDs or mutual funds).
And, keep in mind that Florida is notorious for disseminating false information about annuities to their residents. Their public “equity indexed annuity alert” has over 23 misstatements or falsehoods about indexed annuities ranging from “[surrender charges] can be as high as 25 percent and last as long as 20 years” to “… bonuses are often illusory, and are seldom paid up-front.” This proposed bill perpetuates the falsehoods with comments such as “[the annuity] has the effect of denying the senior consumer access to his or her assets for the most of the rest of the consumer’s life.” These are outright lies. No indexed annuity has surrender charges of 20 years, or up to 25 percent. Exactly 93 percent of all indexed annuities with bonuses have an up-front bonus with no requirements to annuitize or take lifetime income. Every indexed annuity allows for 10 percent withdrawals of the cash value annually without penalty, and 95 percent of the products also allow for penalty-free withdrawals in the event triggers such as terminal illness, nursing home confinement and even unemployment.
We need to ensure that this bill does not get enacted. Call your legislators. Get trade groups like the NAIC and the ACLI involved. Let’s make a difference, and protect the seniors that need our help more now than ever. SB 1372 only hurts Florida seniors and radically limits their retirement preservation options. Who else will protect their retirement income in such a tumultuous market?