Last week, LifeHealthPro and ProducersWEB co-hosted a Twitter chat with indexed annuities expert Sheryl Moore, (left) president of annuityspecs.com. You can check out the entire transcript at ProducersWEB.com.
Below, we’ve highlight some of the key topics, including booming indexed annuity (IA) sales, non-traditional competitors entering the annuity space and the 10/10 rule, just to name a few. As you look over these items, give us some feedback on what annuity topics you’d like covered in the pages.
Q1: Why are sales of indexed annuities doing so well, despite the fact that interest rates and caps are so low?
Sheryl Moore: When the market goes down, sales of IAs go up. With that in our rearview, combined with historically low rates, sales are way up!
Q2: Why are indexed life insurance caps so much higher than indexed annuity caps?
Moore: IA companies can only make a profit via a spread. IUL companies can make a profit via insurance charges, loads, spreads and more. This pricing difference accounts for why indexed annuity caps are averaging just over 3 percent and indexed life caps are averaging 12 percent.
Q3: Why do IAs get such a bad rap?
Moore: IAs get a “bad rap” due to inflated accounts and misinformation in the media. Improper sources, old info and no fact checking hurt us all.
Q4: What are the main selling points for IAs?
Moore: IAs main selling point is the promise of no losses as a result of market changes. Today more than ever, Americans value guarantees. However, IAs also provide the opportunity to earn interest based on the growth of the market, subject to a limit.
Q5: Why are banks and broker-dealers entering the IA space?
Moore: When the market drops, VA (variable annuity) sales drop. Normally, fixed sales go up at that time. With fixed rates so low, the sales are going to IAs…That means a lot of companies are being “bullied” into developing IAs. Plus, B/Ds and banks are looking to supplement their income…(Bullied? Why so?) These companies have been bad-mouthing IAs for eons! Some have threatened their distribution if they sell them. However, with VA assets declining and fixed, too, the assets will continue to drop unless they develop IAs.
Q6: How has regulation changed indexed annuities since the onset of FINRA’s Notice to Members 05-50?
Moore: Regulation has transformed the fixed, indexed and variable annuities that are in your toolboxes. Most notably, the 10/10 Rule. The 10/10 rule says that annuities cannot exceed a 10-year surrender charge or a 10 percent penalty. That is restrictive on pricing! When you limit annuity surrender charges, you also limit the bonuses, compensation, and credited interest to the client! Low interest rates make it even more difficult to develop attractive annuities in a 10/10 regime. Our products are commoditized. As an expert, I find 10/10 to be uncompetitive. Who is the insurance commissioner to tell me a 16-year annuity isn’t right for me? The regulators are controlling “bad agent” behavior with a limitation to a product. It isn’t right and it takes away choices. Due to the new IIPRC regulatory group, most annuities will be 10/10.