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Life Health > Annuities > Variable Annuities

SEC's Blass Looks to 'Future-Proof' Proposed VA Summary Prospectus

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Dalia Blass, director of the Securities and Exchange Commission’s Investment Management Division, issued a request on Thursday to insurance industry executives and attorneys on how to weigh in on the agency’s recently released variable annuity summary prospectus proposal: “Please do not approach your comment letters as a legal exercise.”

Speaking at the American Law Institute Continuing Legal Education life insurance products conference in Washington, Blass said that if the long-awaited rule gets adopted, “it could be on the books for a very long time. I don’t want a rule that is going to be out of date the minute it’s adopted. We want to future-proof it.”

How? Blass urged attendees to start by asking their designers, marketing, disclosure and product development teams “to pick up a pen, click a mouse, tap a keyboard … and actually try out the rule.”

She asked: “What would your summary prospectus look like? What should it look like? How will you deliver it? Can it work across platforms like email, paper and mobile?”

Does anything in the plan, Blass continued, interfere “with you giving the clearest, effective, most useful disclosure that you can?”

(Related: SEC Proposes Long-Awaited Variable Annuity Summary Prospectus)

Noting that the variable products market is a $2 trillion industry, Blass said that investors “often turn to these investments for their capital markets exposure and insurance guarantees that they can’t get elsewhere.”

Investors “benefit from diversity of choices,” Blass said. “The companion to that choice is information.”

Breaking Down the Plan

The VA summary prospectus proposal the securities regulator voted to issue for public comment on Oct. 31, Blass said, is designed to reform the disclosure framework for variable contracts.

“What started out as a process to propose a summary prospectus became so much more,” Blass told attendees. The proposal offers layered disclosure to insurance products, updates registration forms, and takes a fresh look at addressing discontinued contracts and leverages technology, she explained.

Blass said a “core feature” of the proposal is the layered disclosure framework. “It would permit issuers to provide investors with a summary prospectus for the variable contracts while making the full prospectus and related materials available online,” she explained.

The process is similar to the layered disclosure that mutual funds have had since 2009, she said, but “it is tailored to variable contracts.”

Instead of single summary prospectus, Blass explained, the proposal features two: an initial summary prospectus for new investors and an updating prospectus for existing ones.

The initial would explain upfront the contract’s features, costs and risks while the updating one would provide information in changes that occur in subsequent years, she said.

In both, the “use of tables and high-level summaries would help make it more reader friendly, and would help make it easier to navigate,” Blass said.

The proposal would also permit layered disclosure about the underlying mutual funds in the contracts. “Certain key information about these funds would appear in a summary prospectus and the fund’s full prospectuses would be available online,” she said. “This change could dramatically improve the investor experience.”

Instead of reading a “telephone book of disclosure and figuring out what’s relevant,” she continued, investors could navigate the information in a way that “responds to their needs.”

The summary prospectus would be “one element” in a layered disclosure framework, with investors using the summary prospectus as “a starting point,” and then they could “dig down through the layers of the information that interests them,” Blass said.

Investors could also view the information in the format of their choice—electronic or paper and at no charge.

The proposal also includes amendments to “modernize the rulebook for insurance products,” Blass stated, with the changes reflecting a retrospective review of the agency’s regulatory framework.

The proposal gave the agency a chance to review how “discontinued contracts” work, Blass said.

She encouraged attendees to weigh in on the plan’s “several possible approaches “ for discontinued contracts.

Looking to the future and the use of technology, the proposal would require the use of “structured data” for certain disclosures, including the fee tables, she explained.

“This change could leverage technology to provide a way for investors, financial professionals, data aggregators and other data users to efficiently analyze and compare information about variable contracts, including, most importantly, their costs.”

Structure data would also allow investors to “more easily” compare investment options offered by the various variable contracts.

(Related: SEC Proposes Long-Awaited Variable Annuity Summary Prospectus)


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