When annuity marketing material needs a little embellishment, that can be a big problem in court.
By Linda Koco
An insurance company that primarily serves credit union members did the unexpected: It sold nearly $90 million in a new type of annuity during the closing months of last year.
The policy is a registered index annuity, and it is offered by MEMBERS Life, a subsidiary of CMFG Life and a member of the CUNA Mutual Group. Only a handful of such products are currently available. The policy is sold by prospectus. It has two index-linked accounts, each crediting interest according to the performance of the S&P 500 index, but with different rate caps and floors.
The company’s initial goal was to sell $30 million of the new product between August and year end. But by Dec.31, sales were ringing in well beyond that, at more than $88.5 million.
This is a story that could be of interest to independent agents. That’s because, although MEMBERS Life has traditionally sold through salaried advisors in the CUNA system, the carrier is now branching out into the independent space.
In fact, at least some of the rapid-fire production in the new annuity came from independents, Laurie Boeckmann said in an interview. Boeckmann is manager of the internal sales desk in the home office, which supports advisors selling the company’s insurance and investment products.
The independents are agent/registered representatives of external broker/dealers (B/Ds) with which MEMBERS has contracted. Their sales are cleared through the CUNA Brokerage Service, a B/D of CUNA Mutual.
The insurer calls its new MEMBERS Zone Annuity a “hybrid annuity.” That’s because it has features of a fixed index annuity and a variable annuity, Boeckmann said. But the contract is filed with the Securities and Exchange Commission as a registered index annuity, so that’s its technical classification.
The nomenclature for products like this is a bit fuzzy right now, since the few products that exist in this class are being marketed with different terms.
For this article, the term used will be hybrid, with the understanding that the word is a placeholder for whatever term the industry and regulators finally settle upon for this category.
In 2013, 153 advisors were selling the hybrid, Boeckmann said.
The average ticket was $83,950, a figure suggesting the hybrid has been attractive to middle-market buyers so far. But two cases came in more than $1 million, she said, so the well-heeled are buying too.
In general, the largest cases came from advisors in credit unions who were doing rollovers of members’ 401(k) plans. The production from advisors in the external B/Ds tended to be “mid-sized” cases, as were tickets for IRA rollovers from mutual funds. Smaller tickets came from non-qualified deposits of certificates of deposit held in credit union accounts.
Boeckmann said there were no special incentive programs or bonuses to boost sales following rollout. She attributed the fast uptake to pent-up demand. “Our advisors had been waiting for this for a long time,” she said, explaining that an advisors’ panel contributed to the product development process, which took a year and half.
Like many fixed index annuities, the Zone Annuity uses a point-to-point design. Minimum deposit is $5,000. The deposits can be allocated to one or both “accounts,” each of which credits interest by linking to the S&P 500. The customer can choose from three index periods — five, seven or 10 years — with earnings potential generally higher in the longer terms.
The company describes the two accounts as risk/reward zones.
The product is similar to variable annuities because losses can occur in the growth account, although there is the minus 10 percent downside to the loss. As the product brochure puts it, dollars in the growth account can experience “limited losses if the market is down, but when the market is up, these dollars have more room to grow” because the cap is higher in this account than in the secure account.
Another similarity to variable annuities is that policyowners can “reallocate” between accounts at any time (but the new allocation won’t take effect until the next contract anniversary). If the owner makes no changes in allocation, the company “automatically rebalances” the accounts on each anniversary using the percentage selected at policy issue.
When the selected index period ends, the company automatically allocates all contract value to the secure account. The owner can then choose to continue the contract, buy a new Zone Annuity if available, covert the value to a guaranteed income stream, or surrender the contract for a lump sum.
Can lose value
The product brochure includes several reminders that the policyholder’s initial investment can lose value. This includes a notation, disclosed in red typeface under a hypothetical, about how the worst case scenario shown in the brochure “could result in a loss of significantly more than 10 percent” of the initial investment in the contract.
“Advisors told us they needed something to offer clients that provided some protection on the downside and that would strengthen confidence to invest” for potential upside that would be greater than what’s available in today’s low-interest products like CDs, Boeckmann said. The contract that resulted does that, she said.
By year end, customers had deposited more than $46.2 million in the secure account and nearly $42.3 million in the growth account.
A key challenge in the independent channel is that many reps are still on a learning curve where annuities of this kind are concerned. In addition, MEMBERS Life is relatively unknown as an annuity provider in that channel. So getting mindshare will take some time.
Some independents do have questions, Boeckmann allowed, but she also said that “two external B/Ds have already signed up.”
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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