By Linda Koco
Reported complaint activity involving annuities is down, and not by just a hair. In 2013, it was down in the neighborhood of 20 percent compared to the year before and by even greater percentages when compared to the two years previous to that.
The improving data contradicts reports about “all those annuity complaints” that some people have heard, including the continuing buzz that complaints keep on rising.
It’s not that complaints against annuities don’t occur. They do. But the numbers — and the percentage declines — in complaints have been going down for the past four years if not longer. Somehow, the message is not getting through.
The percentages are based on 2013 data posted on the websites of two national regulatory bodies that track annuity complaint activity - the National Association of Insurance Commissioners (NAIC) and the Financial Industry Regulatory Authority (FINRA).
A review of the numbers may help agents and advisors understand what has happened, so they can help customers get a more balanced picture.
A closer look
NAIC reports complaint activity as “closed complaints.” These are complaints that state insurance regulators found to be valid and then closed after resolution.
The NAIC website shows that the number of closed complaints in the “annuities” category has fallen substantially since 2010. In 2013, they numbered 335 — down 24 percent compared to 2012. The 2013 complaints are also down by 23 percent compared to 2011, and by 40 percent compared to 2010. The strengthened suitability regulations that states started adopting after NAIC published them in 2010 may have contributed to the improvements.
NAIC reports on “group annuities,” too. For all of 2013, group annuities had only 13 closed complaints. That’s down 48 percent compared to 2012, down 26 percent compared to 2011; and down 19 percent compared to 2010 (when there were only 16 closed complaints).
Other complaint categories in the NAIC table — such as “equity-indexed,” “fixed,” “single premium” and “variable” — also show decreases. The numbers don’t appear here, however, since the NAIC table does not indicate whether the categories reference annuities only, life policies only or annuities-and-life combined.
States submit this data voluntarily, so the numbers may not be all-inclusive. Even so, the NAIC tables provide a broad nationwide picture of state-level annuity complaint activity, and it’s definitely down.
The FINRA data tallies “arbitration cases” filed. Arbitration cases are a measure of complaint activity for a variety of securities products, including variable annuities.
The FINRA data shows that in 2013, variable annuity arbitration cases in numbered 174 -- down 21 percent from the 220 cases reported in 2012, 18 percent from 2011, 38 percent from 2010 and 40 percent from 2009.
The decline is notable because case filings dropped even though certain carriers implemented some then-unpopular measures to adapt to prevailing economic conditions. For instance, between 2012 and 2013, some carriers imposed moratoriums on deposits into in-force products with living benefit guarantees, sold existing books of business, offered buy-out deals to existing customers, etc.
Due to the industry tumult those steps caused, some observers had expected complaints to rise, when they actually did not. They fell.
How does the FINRA variable annuity data compare to complaints involving mutual funds and common stocks? In 2013, these complaints also declined, and by percentages that are close to the percentage decline reported for variable annuities.
For instance, the arbitration cases involving mutual funds fell to 308 in 2013 from 392 the year before —a decline of 21 percent. And arbitration cases involving common stocks in 2013 dropped to 561 from 736 the year before, making for a 24 percent decline.
When compared to previous years, complaints for mutual funds stocks declined by greater percentages. For instance, the 2013 mutual fund cases were down by 53 percent compared to 2011, 64 percent compared to 2010, and a whopping 80 percent compared to 2009. So variable annuity cases, although smaller in number, have have been slower to decline, but they still declined.
What about the chasm?
How do we understand the chasm between reports that annuity complaints are rising and data showing the opposite? Annuity advocates sometimes blame annuity critics for intentionally disseminating incorrect information about annuities. That might be true in some instances but other factors are likely to be at work as well.
For one thing, some people may be unwittingly using outdated data. During the 2008-2009 recession, complaints rose precipitously about all kinds of insurance and financial products, including annuities. Stories about that may still be circulating even though reported complaints are now down.
The slowness of the decline may account for some of that. As the NAIC and FINRA data illustrate, complaints declined gradually following the recession-era highs. But because gradual change can be harder to see than explosive change, the four-year shrinkage in annuity complaints may have gone unnoticed.
Complaint reports attributed to other sources might be muddying the waters too. Take the Securities and Exchange Commission (SEC), for example. Data attributed to the SEC has been widely sourced as proof of rising complaints involving variable annuities following the Great Recession. But repeated visits to the SEC website in recent weeks produced only a chart of the “Ten Most Common Complaints as of 2012.” Annuities are not on that list, data from previous years is absent and there is no data for 2013 as of yet. So it is difficult to validate remembered reports of SEC data about rising annuity complaints and also to compare trends.
In addition, some data gatherers just peel off of a complaint category without much fanfare. For example, the North American Securities Administrators Association (NASAA) did include both variable annuities and equity indexed annuities on its list of “most reported products” in its 2011 report (on enforcement activity in securities in 2010). However, neither product line appears on the comparable list in NASAA’s 2012 and 2013 reports
Other complicating factors may include word-of-mouth chatter about local annuity complaints, or simple misunderstandings.
As a rule, the regulatory and self-regulatory bodies that publish complaint activity data tend to warn the public about rising problem areas, not declines. So, if they do not put the word out on annuity improvements revealed in their data, who will? It would seem to be in the public interest for annuity professionals and carriers to take on this task.
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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