Congress Urged To Cut ‘Regulatory Barriers’ To Index-Linked Annuities

By John Hilton

Four industry organizations are rallying behind legislation to open up access to index-linked annuities.

The measure, the Registration for Index Linked Annuities (RILA) Act, is sponsored by Sen. Tina Smith, D-Minn., Sen. Thom Tillis, R-N.C., Rep. Dean Phillips, D-Minn., and Rep. Steve Stivers, R-Ohio. It directs the Securities and Exchange Commission to devise a new form for annuity issuers to use when filing registered index-linked annuities.

House and Senate versions of the legislation were introduced in May.

“This legislation will serve consumers by reducing regulatory barriers, facilitate the offering of innovative annuity products such as Registered Index Linked Annuities (RILAs), and ensure pertinent information is provided to consumers to make knowledgeable decisions about an annuity product they may choose to purchase,” said Wayne Chopus, IRI president and CEO.

Under current SEC rules, registered index-linked annuities must be registered using forms that are designed primarily for equity offerings and therefore require extensive information that is not relevant to prospective annuity purchasers.

These forms also require disclosure of financial information prepared in accordance with generally accepted accounting principles (“GAAP”), which many insurers are not otherwise required to produce.

The bill requires the U.S. Securities and Exchange Commission (SEC) to modernize and replace the current forms being used to file RILAs with a new registration form more closely tailored to this product.

It would contain only the relevant information consumers need to make an informed choice about purchasing a RILA, eliminating extraneous information that currently makes the filing process more onerous and understanding the product more difficult.

'Skeptical'

A registered index-linked annuity (RILA) can bring balance to an investor’s portfolio, the groups claim. It allows the investor opportunity for some market growth without all the risk that comes with investing directly in the market, along with reduced downside exposure to partially protect the investor from market losses.

Birny Birnbaum, executive director of the Center for Economic Justice and a consumer advocate focusing on insurance products, said he is skeptical of registered index-linked products. In general, he said the industry does a "terrible job" with illustrations and has a history of misleading product disclosures.

"We have to be skeptical about industry clams for 'tailored' consumer information and making it easier to sell ever more complex financial products," he said today.

Registered index-linked annuity sales were $4.9 billion in the first quarter 2020, up 38% from the prior year results, according to final results from the Secure Retirement Institute U.S. Individual Annuity Sales Survey.

Joining the Insured Retirement Institute (IRI) in the effort are the American Council of Life Insurers (ACLI), Committee of Annuity Insurers (CAI), and the National Association of Insurance and Financial Advisors (NAIFA). The group sent a letter of support today to the sponsors of the legislation.

The groups wrote, “We support this bill because it will lower a significant barrier that is preventing this innovative retirement income product from being used by more consumers who desire an annuity product providing some protection of their investment principal from market loss volatility, while also allowing participation in market growth.”

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]. Follow him on Twitter @INNJohnH.

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]. Follow him on Twitter @INNJohnH.