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A National Association of Insurance Commissioners publication has news for state insurance regulators: They may have succeeded at hiding the existence of the life insurance and annuity guaranty system from annuity buyers.
The NAIC's Journal of Insurance Regulation is informing regulators of that possibility by publishing a paper assessing consumers' awareness of state insurance guaranty protections.
The authors — David Blanchett, the head of retirement research at PGIM; Michael Finke, a professor at the American College of Financial Services; and Michael Guillemette, a professor at Texas Tech University — looked at data on 5,577 purchases of multi-year guaranteed annuities completed through an unnamed annuity sales site from June 2020 through April 2024.
The researchers concluded, based on their analysis of the MYGA sales data, that guaranty fund protection limits had no noticeable effect on MYGA sales.
"Sophisticated investors do not appear to take advantage of opportunities to earn higher returns below protection thresholds during periods of market turbulence, when spreads between higher- and lower-quality insurers widen," according to the paper abstract.
What it means: Guaranty funds are providing some protection for annuity owners without reducing consumers' level of concern about the issuers' own stability.
Publication of the paper in the NAIC journal could draw regulators' attention to the topic of communications about guaranty funds.
The backdrop: U.S. banks brag about depositors' access to Federal Deposit Insurance Corp. protection.
U.S. insurance regulators discourage insurers from talking about guaranty fund protection, because they want insurance buyers to help police insurer solvency.
Some regulators fear that buyer dependence on guaranty fund protection will create "moral hazard," by reducing buyers' interest in insurers' finances.
Regulators also want to minimize consumers' reliance on guaranty funds because, in most states, the guaranty fund association gets the cash needed to respond to an issuer's failure by imposing assessments on the surviving members, not by collecting annual dues and building reserves.
The paper: Blanchett and his colleagues measured the impact of the guaranty system on MYGA sales by looking at contracts purchased for premium amounts around either $250,000, which is the guaranty fund protection limit in many states, or around $300,000, which is the protection limit in other states.
The researchers found no evidence that MYGA purchase patterns were different right below and right above either the $250,000 premium amount or the $300,000 premium amount.
The researchers posted a working paper version of the study in 2025.
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