WASHINGTON, D.C. -- Annuity manufacturers have always been a creative subset of the financial services industry.
While that creativity might have attracted the unwanted attention of regulators, it also will help the industry survive, a panel of experts said Tuesday at the Insured Retirement Institute's Government, Legal and Regulatory Conference 2016.
In particular, fixed indexed and variable annuities were targeted by the Department of Labor's fiduciary rule. Both will require a Best Interest Contract Exemption to be sold with current commissions. That means hefty disclosures and a legally binding commitment to act in the client's "best interest."
Industry analysts say the rule will trim commissions and surrender charges, and bring overall costs down. Manufacturers are already responding, said Tamiko Toland, managing director of retirement income consulting for Strategic Insights.
Jackson National is nearly ready to debut a VA with a short three-year surrender period and a low 2 percent penalty, she said. The product yields no commission for advisors, but investors retain options such as guaranteed lifetime withdrawal benefits (GLWBs) and death benefits.
"We didn't even know what to do with this thing," she said, referring to how to classify the product. "But we're viewing this as a response to the Department of Labor conflict of interest rule."
A big key in the industry's favor is its versatility, Toland said.
"It's not like we have one single distribution channel that functions in one particular way," she explained. "The responses are going to be varied. The insurers are not really building things in a vacuum. They're talking to distributors ... and how they're going to be doing business in the post-DOL world."
Citing another example of the rapidity of change in the annuity world, Toland delved into investment only variable annuities (IOVAs). The industry created the product as well as coined the term, but innovation quickly rendered the acronym inaccurate.
"The term is grossly inaccurate. They're not investment-only contracts," Toland said, noting that living benefits and death benefits are available with some IOVAs.
Toland summed up the session by emphasizing that industry innovation will remain a step ahead of the regulators.
"We're going to see a lot of change, but it's not necessarily bad change," she said.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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