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Life Health > Annuities > Fixed Annuities

Annuity Facts: How Suitability Has Changed the FIA Market

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Indexed annuities are insurance products that are currently and always have been regulated by state insurance departments. In January 2009, the SEC tried to gain jurisdiction over indexed annuities by publishing Rule 151A, a regulation that would classify indexed annuities as securities. In July 2009, the U.S. Court of Appeals for the D.C. Circuit blocked the SEC from implementing Rule 151A pending a study by the SEC of the potential impact the rule would have on capital formation and competition. On July 13, 2010, the court overturned Rule 151A once and for all.

In the interim, Congress introduced two bills – S. 1389 and H.R. 2733 – to clarify that indexed annuities are insurance products and should be regulated by state insurance departments; that they are not securities under the jurisdiction of the SEC.

When the SEC proposed Rule 151A to gain jurisdiction over indexed annuities, it stated as its major rationale the need for additional consumer protection as evidenced by a rising number of customer complaints against indexed annuities. However, actual statistics gathered from state insurance departments reveal that the number of customer complaints against indexed annuities is not only low, but declining over time.

The customer complaint rationale

On June 25, 2008, the SEC unanimously voted to propose a new rule that would require agents to register with the SEC if they wanted to offer indexed annuities. SEC Chairman Christopher Cox began the meeting by noting that the rulemaking initiative was the product of a three-year collaboration between the SEC and the North American Securities Administrators Association in addressing senior sales practice issues. After sharing statistics on complaints brought by seniors, Cox played for the audience an excerpt from an April 2008 NBC Dateline report called “Tricks of the Trade,” which purported to reveal abuses in indexed annuity sales practices.

Similarly, when the SEC published its final Rule 151A in January 2009, the background section of the document noted that the commission wanted jurisdiction over indexed annuities largely because the growth in indexed annuity popularity “has, unfortunately, been accompanied by growth in complaints of abusive sales practices.”

The reality

The National Association of Insurance Commissioners (NAIC) regularly collects customer complaint data through its centralized electronic Complaint Database System (CDS), through which states voluntarily report closed complaints. First established in 1990, the CDS houses data on more than 2 million complaints for all insurance lines in all 50 states.

The NAIC’s report “Closed Confirmed Consumer Complaints by Coverage Type – As of May 21, 2010″ reveals these complaint statistics by the type of annuity:

Type of Annuity




Year-to-date 2010






Fixed (declared rate)





Fixed indexed





Notice that the number of complaints against indexed annuities is low and declining over time.

Furthermore, consumers who own security products register complaints with FINRA. Investment News reported that FINRA arbitration claims against the products it regulates has increased 43 percent, including a $1.5 million fine against Mutual Services Corp. for supervisory failures.

Thus, it is apparent that customer complaints against indexed annuities are low and declining over time, whereas customer complaints against products regulated by the SEC are higher and increasing over time.

Existing Regulation is Sufficient

At the National Association for Fixed Annuities, we believe that indexed annuities are insurance products that are effectively regulated by state insurance departments and consumers are better protected with the availability of competitive products without the costly and duplicative SEC regulations.

We believe that the relative paucity of consumer complaints against indexed annuities discredits the SEC’s primary rationale for proposing to bring indexed annuities under its jurisdiction.

In this mothly column, the National Association for Fixed Annuities (NAFA) will provide essential information about fixed annuity product features, regulation, tax issues, and industry news. We invite you, the reader, to send us any questions that you often hear — or that you may have yourself. Submit your questions to [email protected] with the subject line “Fixed Annuity FAQ” to have your problems answered here.

The National Association for Fixed Annuities (NAFA) is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities — including income, declared rate, market value adjusted, and indexed. You can follow NAFA on Twitter at


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