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Regulation and Compliance > Federal Regulation > SEC

9 Ideas for Making the SEC's Annuity Summary Prospectus Shine

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Officials at the U.S. Securities and Exchange Commission (SEC) are working on a new document template that could, possibly, make selling a variable annuity or variable life insurance contract feel a little less like wrapping a prospect’s brain in duct tape.

The SEC template makers are seeking public comments on the effort to create a new variable annuity and variable life summary prospectus that will let the light shine in.

Variable products issuers, and the financial professionals who help consumers understand the products, have been pleading with the SEC to create a summary prospectus for decades. The U.S. Treasury Department gave the variable products summary prospectus project a push in October 2017, by putting “talk to the SEC about this” in a department regulatory priorities report.

(Related: Saving LTCI and 9 Other Top Treasury Life and Annuity Projects)

The SEC unveiled a summary prospectus proposal in October 2018.

Originally, the project managers set Feb. 15 as the comment submission date. The commenters complained about not having enough time. The SEC has since pushed the deadline back to March 15.


The comments already filed by the original Feb. 15 deadline are already on the web.

One anonymous commenter, who weighed in Dec. 12, 2018, has objected to the idea of the SEC having anything to do with the summary prospectus project.

The summary prospectus proposal “is a wasteful proposal, furthering the separation of classes in our great country,” the commenter states. “The outcome sought is at the benefit of the insurance industry, at the cost of the American people.”

Here’s a look at nine of the other ideas in the comments already submitted.

1. The name of the document

Members of the VIP Working Group — a team of eight attorneys representing six insurers that are active in the variable products market  — have suggested “prospectus” may be a confusing term.

“Consider alternatives, such as ‘key information document,’” the working group writes.

2. Formatting

An anonymous commenter who responded Dec. 28, 2018, said the vision expressed in the original SEC project notice seems to be too paper-based.

Instead of requiring rigid, paper-oriented formatting, “permit flexibility, such as a website with tabs for each section, instead of a serial document,” the commenter writes.

The SEC should also let an issuer make a prospectus more interactive and personalized, by eliminating the need for an issuer to file every single variation with the SEC, the commenter writes.

3. Flexible Wording

The Dec. 28 anonymous commenter says the SEC should consider requiring issuers to replace, or define, terms that may be familiar to regulators but not to consumers.

The commenter cites, “State the commissions paid to dealers as a percentage of purchase payments,” as an example of a direction that is not in plain English.

“I do not know what a ‘dealer’ is,” the commenter says.

4. Coordinating Issuers’ Flexible Wording

Susan Cheever, general counsel of Pacific Life Insurance Company, says the SEC should let issuers be somewhat flexible about the use of terms, to avoid locking issuers into use of old-fashioned terms, or terms that consumers don’t understand.

But the SEC still needs to create a framework that will help consumers compare with one summary prospectus with another one, Cheever writes.

“If carriers are provided the flexibility requested, industry ‘terms of art’ can be included in parenthesis with the new term and/or be used in the description or definition of such term,” Cheever writes. “For example, ‘surrender charge’ could be added in parentheses if the carrier described this feature as ‘the cost of terminating your contract early.’ By rephrasing ‘surrender charge,’ the consumer can more easily understand that there is a cost to them for terminating their contract too soon, but the industry term can still be included in that explanation for ease of reference and comparison.”

5. The Standard Example Amount

The SEC has suggested that issuers should base variable product examples on an assumption that the consumer will start out investing $100,000 in the product. Today, a key information table already in use assumes $10,000 as the base amount.

Andrew Bowden, the general counsel at Jackson National Life Insurance Company, says $10,000 would be a better base amount — partly because using a $10,000 assumption could help variable products compete on an even footing with mutual funds.

“Retaining this assumption aids consumer understanding and comparison by maintaining uniformity with the requirements for mutual fund investment assumptions,” Bowden writes.

He writes that many variable products have $10,000 minimum initial premium requirements.

“By requiring variable products to display expenses that are disproportionately higher than the expense examples required for mutual funds, the proposed $100,000 assumption makes it more difficult for consumers to accurately and easily compare these two options,” Bowden writes.

6. Variable Life

Stephen Roth and Dodie Kent write, on behalf of the Committee of Annuity Insurers, that one important consideration will be fine-tuning the summary prospectus to fit variable life insurance policies.

Variable annuity contracts, for example, might have a “standard death benefit,” but variable life insurance policies generally do not, Roth and Kent write.

A typical variable life policy offers the purchaser a choice between two or three different death benefit options, Roth and Kent write.

For variable life products, the heading for the “standard death benefits” summary prospectus section should simply say “Death Benefits,” rather than “Standard Death Benefits,” Roth and Kent write.

The SEC also needs to give variable life issuers the flexibility to describe the important, non-standard benefits variable life policies might offer, such as child riders and access to premium loans, Roth and Kent write.

7. Surrender Charges

Gary Sanders, general counsel of the National Association of Insurance and Financial Advisors, suggests that template designers should tweak the current hypothetical summary prospectus, to change the way surrender charges are shown.

“While these possible charges should be prominently disclosed, our sense is that the way they are currently portrayed over-emphasizes the risk they present,” Sanders writes.

8. Discontinued Products

Michele Abate writes, on behalf of Brighthouse Financial Inc., that issuers need rules that will help ease disclosure requirements for discontinued variable contracts with only a small number of remaining contract owners.

Abate reports that it has used past SEC determinations, known as “Great-West” letters, to ease disclosure requirements for 106 registration statements for discontinued products. Eliminating the Great-West letters without providing a comparable solution would lead to a need for a significant increase in resources devoted to administering small, closed blocks of contracts, she writes.

9. Testing

Dennis Kelleher and Lev Bagramian of Better Markets say the key to developing a successful variable annuity summary prospectus will be testing a variety of summary mockups.

The Better Markets commenters say the SEC should test whether the summary design, language and elements are effective; whether investors seem to understand the nature of the benefits promised; whether investors seem to understand the possible impact of fees and surrender charges on product performance; and whether investors come away understanding the role of an investment professional involved in the transaction.

The SEC should see whether investors using a sample summary prospectus understand the implications of the conflicts of interest that may prompt an investment professional to recommend the purchase of a new variable contract, or the exchange of one variable contract for another, the Better Markets commenters write.

The SEC should also see whether investors using a sample summary prospectus understand “the fact that the investment professional may not have an ongoing duty of care.”

After the SEC completes the testing, it should then start a new public comment period before establishing new summary disclosure requirements, the Better Markets commenters write.


Copies of the comments on the summary prospectus proposal are available here.

— Read 5 IRI Priorities That Could Help Your Annuity Sales, on ThinkAdvisor.

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© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.