NAIC Working Group Stumbles On Annuity Illustration Changes

By John Hilton

A state insurance commissioners' working group hoped to finalize changes today on a rule amendment to allow insurers to illustrate indexed annuities using indices that have been around less than 10 years.

But a morning conference call to finalize the rule amendments ended with more questions than answers. Some regulators are not convinced consumers will understand how the indices work.

“There’s a lot of small print," said Matt Gendron, general counsel for the Rhode Island Department of Business Regulation. "There’s a lot of hypothetical information. There’s a lot of ‘might’ information."

The working group is tackling two issues:

• Under regulation #245, there is no way to illustrate indexes on fixed indexed annuities that have not been in existence for the previous 10 years.
• The definition of “non-guaranteed elements” could be construed to include participating income annuities because of the formula used to calculate the dividend scale.

Insurers say the 10-year requirement isn't necessary if index components have been around that long.

The issue rose in importance as many insurers developed their own proprietary indices in recent years to respond to the popularity of indexed annuities with cautious clients.

Volatility Controlled Indices

Allianz Life Insurance Co. had two representatives on the call to explain how volatility controlled indices are educating consumers and providing choice and value.

"Not all of them have outperformed the traditional equity indexes, but a lot of them have," said Brenden Sheehan of Allianz. "If it’s not illustrated, we’re leaving consumers to form their own perceptions of things."

But Birny Birnbaum, executive director of the Center for Economic Justice, was skeptical as ever, questioning whether consumer would be able to understand any of it. At one point, Birnbaum asked Sheehan whether the illustrations or the product features are the prime driver of sales.

"If we were to look at a study of different product features, those definitely drive sales more," Sheehan responded.

As the hour-long call ran long, Chairman Mike Yanacheak, actuarial administrator at the Iowa Insurance Division, said another call will be needed soon.

"Hopefully, we can come to a 'yay' or 'nay' on this proposal," he added.

The parent Life Insurance and Annuities Committee must vote to accept any amendments recommended by the working group. Then the NAIC Executive Committee must approve it before it is sent to the states for adoption.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.