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9 Reasons Annuity Regulation Needs a Revamp

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What You Need to Know

  • Many retirees lack the income to pay their bills.
  • Workers ages 45 to 54 seem to be keenly interested in planning for retirement.
  • The author questions whether federal and state governments have the resources to act as longevity insurers of last resort.

America’s retirement crisis is just starting to rear its ugly head. Realization is beginning to set in for consumers aged 55 and older that they have not saved enough to sustain their standard of living in retirement. In fact, with Peak 65 coming in 2024, many are lobbying Congress to substantially increase minimum Social Security retirement benefits as the current payouts are not sufficient. The day of financial reckoning for many older Americans reaching their 60s is coming. They don’t have sufficient lifetime income to pay their bills.

On the other hand, a recent survey by The Alliance for Lifetime Income and CANNEX, “The Protected Retirement Income and Planning Study,” found that younger individuals (ages 45-54) are beginning to plan ahead. They are concerned when it comes to their financial future, ranging from the declining prevalence of private sector pensions to how much they’ll need to save for their retirements.

All of the above points to the need for better access to and availability of lifetime income solutions through direct-to-consumer platforms, financial professionals and insurance-only licensed agents. Can access and availability improve? Is our regulatory system doing all it can to promote access and ease of purchase for the financial solutions needed? In my opinion, the answer is no. Instead there is a confusing mix of regulatory initiatives currently in play.

In my experience I have found most all regulatory organizations to be under-resourced and fighting hard to keep up with technological and other innovations of the organizations they supervise. Many times, however, regulations are a roadblock to improving consumer value. Just look at the improvement in consumer health outcomes that has resulted from the pandemic-forced approval to use telemedicine.

Why is an annuity regulatory rethink needed? Here are some considerations:

1. Annual industry annuity sales at best increase by the rate of GDP growth rather than the population increase in the older demographic cohorts

Even though the US industry produces over $220 billion per year in new annuity sales it is not at all capturing a growing share of protected income needs. What are the reasons for this lack of market penetration? Is the current regulatory structure limiting sales?

2. Licensed insurance professionals focused on annuity sales are aging with the average age near 60 with little new blood joining the industry.

Will there be sufficient professionals to service the needs of an aging population? Should regulation be changed to facilitate technology delivery solutions?

3. New retirement legislative initiatives are being offered in Washington, but…

Many of the proposed solutions will help younger generations and not those in close sight of retirement.

4. Annuities are insurance products but are often treated from a regulatory standpoint as primarily investment products.

Shouldn’t regulation reflect the insurance nature of the products and the low level of consumer complaints? Does this situation confuse consumers? Shouldn’t regulation emphasize the products’ insurance features and benefits?

5. The number of life insurance carriers writing annuity business continues to shrink.

Are current and proposed regulatory concerns part of the reason for the exodus?

6. The federal and state governments cannot function as the longevity insurers of last resort.

They do not have the financial resources to pay for the full cost of every citizen’s retirement. Private sector solutions are a must to address the longevity income issue. Is the regulatory community focused on helping to facilitate this growing problem? There would appear to be a governmental financial benefit to promoting private sector solutions.

7. Shouldn’t insurance producers in all states be allowed to mention the existence of guaranty funds?

Why is there still a gag order in place in a number of states?

8. It costs money to reach consumers, educate them and deliver protected income solutions.

Why is there such a back and forth about commissions and fees paid to financial professionals based on which political party is in power? The consumer need for protected income cannot be met without funding from some source. Quality advice is not free. The current environment involving disparate fiduciary-based and insurance-based Best Interest standards is confusing for financial professionals and consumers alike. Possible new fiduciary definitions for qualified funds will add a new layer of confusion.

9. Why can’t a set of simpler, regulatory-lite products be approved that reduces disclosure and compliance requirements?

It is time to rethink annuity regulation to improve access and delivery of solutions to growing numbers of older Americans. These consumers need easy access to financial advice and product solutions to make their retirement journeys more secure.

Like the Paul Kelly and Kev Carmody song “From Little Things Big Things Grow”, if annuity regulators can make a number of little improvements, there is the possibility to make access better for all and improve protected income outcomes.

Harry N. Stout (credit: Stout)Harry N. Stout has been the president of Fidelity & Guaranty Life, deputy chief executive of Old Mutual Financial Network, and managing director of Insurance Insight Group. He is also the author of The FinancialVerse personal finance books and of a new book, Today’s Annuities — A Tool to Create Protected Lifetime Income.

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