Risk-control index innovation grows as regulators scrutinize complexity

Record-breaking demand from an aging population and a volatile stock market continues to push indexed insurance products into the financial mainstream.

New data from LIMRA and Wink Inc. shows that indexed designs are driving the dominant share of new life insurance and annuity premium growth. The surge comes as a massive wave of retiring Americans seeks wealth-management tools that pair stock market growth potential with absolute protection against market downturns.

The data paints a relentlessly rosy picture of indexed dominance: 

» The total number of indexed universal life policies sold grew 5% during the second quarter and sales hit $2.2 billion for the first half, LIMRA reported. Sales are flat due to explosive 17% growth to $4.5 billion in full-year 2025.

» Wink reported $30.1 billion in sales of pure indexed annuities in Q2 and another $22.1 billion in structured, or registered, index-linked annuity sales. RILA sales topped the previous record-setting quarter by 3.5%, Wink said.

The competition for sales is intense, said Sheryl Moore, founder and CEO of Wink and Moore Market Intelligence, and is being felt throughout the industry.

“It is harder than ever to break into the independent agent distribution for indexed annuities,” she said. “We have startup insurance companies with aggressive features, insurance companies that have been funded by marketing organizations, increasingly competitive features offered by insurance companies with private equity ownership and a couple of handfuls of marketing organizations developing their own products.”

In response to consumer demand, the index market continues to innovate as asset managers and insurers develop new ways to manage market risk, blend active and passive strategies, and use emerging technologies such as artificial intelligence.

Indexed products remain popular for a couple of reasons, said Laurence Black, founder of The Index Standard, an independent research firm providing ratings, forecasts and analysis. For starters, they offer good value for investors and future retirees to manage volatility. Second, an indexed product adds diversification to a portfolio, he explained.

“I think that by offering a multi-asset risk control index or offering some diverse exposures — whether it’s international equities, gold or commodities — that allows the end consumer to build a more holistic portfolio to get a more consistent return,” Black said.

The Index Standard counted roughly 365 different indices in the market as this issue went to print.

“And it’s growing every single month,” said Trent McKinnon, vice president at The Index Standard.

The index developments come as insurance regulators, mainly the National Association of Insurance Commissioners, take a closer look at the complexity of indexes and the use of historical back-tested performance in annuity illustrations.

Emerging focus on budgeting

The dozens of new indexes hitting the market each year include a wide range of technologies, strategies and options available to insurers and consumers.

One emerging approach is “variance budgeting,” which McKinnon said can provide a more cost-effective way to track an underlying benchmark.

“So when you get those really big rebounds, you’re not really backed out; one still has exposure to the underlying index,” he explained. “You’re able to basically capture that very large and sharp recovery where you historically had not been able to.”

The approach is being used in an index known as the S&P Distance Stabilizer, Black noted.

Available since September, the Distance Stabilizer is a custom volatility-controlled index developed by S&P Dow Jones Indices in collaboration with Société Générale. It is primarily designed as a crediting option inside modern fixed indexed annuities and indexed universal life insurance policies.

That index structure can be particularly important following steep market declines, when some risk-control strategies can reduce exposure at the same time as the market begins a rapid recovery.

Another emerging trend is the blending of active and passive investment strategies, Black said.

Active funds and exchange-traded funds increasingly are being wrapped in risk-control features and incorporated into annuity products. The approach can give consumers access to active management while using risk controls to stabilize the cost of the underlying exposure.

“It’s kind of like the best of both worlds,” Black said.

The analysts said they have seen four or five such products emerge and expect more to follow.

Indexes grow more complex

The expansion of index strategies is raising further questions about whether greater complexity actually benefits consumers.

The Index Standard is using an internal complexity score to evaluate hundreds of indexes, examining factors such as the number of signals, allocation methods, how quickly allocations change, the use of market regimes and additional risk-control features.

If anything, newer indices are showing slightly less complexity than they did during the ultra-low-rate environment of a few years ago, McKinnon said. But that does not mean that complexity has completely gone away.

“The different forms of complexity are not necessarily extreme,” McKinnon said.

Indexes include traditional benchmarks such as the Dow Jones Industrial Average and the S&P 500. Those indexes are relatively simple but can become more expensive to access, particularly when market conditions drive up the cost of options and other components used to construct annuity crediting strategies.

The best place to be, McKinnon said, is “somewhere in the middle” ground in which an index has enough sophistication to manage risk without becoming overly engineered.

The complexity findings are influenced by the recent market environment, Black noted. Technology stocks and major equity benchmarks have performed exceptionally well during the past several years, making it difficult for risk-control strategies to keep pace with a largely upward-moving market.

“If we’d been in a bit more of a choppy market, maybe the story would be a little bit different,” Black said.

Evolving in a competitive market

In June, Jackson National Life Insurance Co. became the first in the industry to introduce the Dow Jones Industrial Average as an index option with a RILA. The Market Link Pro 4 offers clients the ability to add funds to an existing contract while adding a guaranteed cap crediting method that locks in rates for six premium years.

Jackson is not restricting which index options can be selected with each crediting method or protection option, enabling clients to adjust their allocations without triggering unwanted tax consequences.

That Jackson is now an innovator highlights just how dynamic indexed offerings have become. A market leader in traditional variable annuities, Jackson was a late entrant in the popular RILA space, acknowledged Matthew Lemieux, head of product and advanced planning solutions at Jackson.

But since launching its Market Pro Link product line late in 2021, Jackson has become a top seller of RILAs. It’s an evolution sparked by consumer feedback and a dynamic competitive environment, Lemieux said.

“We had the philosophy of making sure that as we introduce indices, as we introduce different crediting methods, different protection levels, we wanted to make sure that was an open platform, that we weren’t creating any restrictions, depending on what index you selected or what protection level you selected,” he added.

In another new offering, announced as this issue went to press, Nationwide, Annexus and Capital Group partnered to add the American Funds Growth Fund of America Class F-3 mutual fund to the Nationwide New Heights Select FIA suite. It makes New Heights Select the first FIA in the industry to include a strategy linked to an actively managed mutual fund.

“This expansion brings financial professionals and their clients new opportunities for growth potential within a risk-managed solution that offers 100% principal protection from market losses,” said Stacy LaiFook, vice president of Nationwide Annuity Business Development.

Regulators scrutinize backtesting

The explosive growth of indexed products comes as insurance regulators examine how much historical data should be required before newer indexes can be used in annuity illustrations.

The NAIC Life Insurance and Annuities Illustrations Working Group is considering changes to its annuity illustration model amid concerns that backtested indexes can produce unusually high illustrated returns and potentially create unrealistic consumer expectations.

Regulators began looking harder at annuity illustrations this year after learning that some products were illustrating as high as 27%.

The working group plans to address illustration length, disclosures, accountability and illustrated crediting rates before considering whether an interim actuarial guideline or other temporary measure is needed.

Many insurers are using “proprietary” or custom-designed, managed-volatility indices. Because these indices are relatively new, they have little to no “live” market history. In order to illustrate products, carriers are using “backtested” or synthetic historical data.

Regulators note these models are often engineered to look highly optimized, resulting in often deceptive projections that do not reflect actual forward-looking economic environments. Discussions have focused on how much history is needed to show responsible illustrations.

On this issue, regulators seem set to come down hard.

“It’s my opinion that illustrations or charts that are used to create unrealistic expectations in the minds of annuity holders are not only unfair and deceptive; they present a significant reputational risk to the entire business,” said Iowa Insurance Commissioner Doug Ommen during a September meeting of the working group.

Annuity illustration Model 245 initially required 10 years of history. In 2021, revisions were made allowing insurers to illustrate indices that had been in existence for fewer than 10 years under certain conditions. Some regulators want to require 20 years.

Black said that goes too far to the other extreme.

Having evaluated indexes for decades, he said three years of live performance can provide meaningful information about whether a new index is working as intended. A 20-year requirement could prevent newer technologies and investment approaches from reaching consumers, Black added.

The analyst compared a 20-year-old index requirement to intentionally choosing old and slower technology.

“If I said to you, ‘Would you be happy using a Nokia from 20 years ago?’ Not really, right?” Black said. “I want to use the latest smartphone with modern technology. Well, the S&P, as great an index as it is, wasn’t really designed for modern annuities that rely heavily on options in their construction.”

‘You do want to be open-minded’

The regulatory scrutiny has not stopped index innovation, Black added. Artificial intelligence, in particular, is beginning to appear more frequently in index construction.

Some indexes use AI to select or weight stocks or to allocate among multiple asset classes. Black said he initially approached the strategies with skepticism, but some AI-based indexes have performed well in their evaluations.

The firm is seeing several new AI-related indexes each quarter, although the technology remains far from ubiquitous.

“I think you do want to be open-minded to some of this new innovation that we’re seeing, and we’re monitoring it all closely,” Black said. “We were skeptical, but it’s performed.”

Risk-control indexes have generally lagged traditional equity benchmarks during the recent bull market, the analysts said. But that is not necessarily a sign that the strategies are failing to accomplish their intended purpose.

The U.S. economy enters the late stages of 2026 facing deep structural vulnerabilities, as an expensive, AI-driven infrastructure boom masks underlying threats of persistent inflation and fiscal depletion.

Speaking at the Federal Reserve’s recent annual economic symposium, Chairman Kevin Warsh warned that consumer prices remain stubbornly high, forcing the central bank to consider further interest rate hikes.

This type of economic uncertainty is what risk-control indices were made for, Black said.

“Now is the time to be thinking about them because if you’re worried about markets dropping, and markets are richly valued right now, this is an ideal time to have this type of index in your portfolio,” he explained.

More consistent returns

Risk-control indexes are designed primarily to reduce losses and smooth returns when markets become volatile rather than maximize returns during a sustained bull market. When volatility rises, these strategies typically reduce exposure to a risky asset like equities and shift some assets into cash or other less-risky investments.

That can produce lower drawdowns and more stable performance during turbulent markets.

The risk-control strategies could become more attractive if markets experience a significant downturn, particularly after the strong gains of recent years. The ability to reset after market downturns is a particularly attractive quality, McKinnon noted.

“It depends on the type of crisis that you’re dealing with,” he said. “If there’s a sharp fall in markets and a recovery, these products are built for that, as they protect your downside. You suffer that consequence of a zero return, but then next year, you reset.”

A prolonged, multiyear bear market presents a greater challenge to generate returns, and this is where diversification is important, he added.

Focus shifts to annuity renewal rates

The industry is also seeing new tools aimed at giving consumers and advisers greater transparency into annuity products.

One recently launched by The Index Standard called the FIA Product Evaluation assesses FIAs based on both carrier characteristics and the overall product quality, Black explained. The evaluation considers factors such as financial strength, service and renewal rates, as well as index quality, diversification, product benefits and potential performance of the underlying indexes. This can be used for Reg BI purposes or due diligence.

Another tool focuses specifically on renewal rates.

Annuity crediting terms can change over time. For example, a benchmark crediting strategy with a cap that begins at 12% could later decline to 10% or 5%, depending on the carrier and market conditions.

The new analysis examines carriers’ historical caps and participation rates, using years of disclosed data to evaluate how crediting terms have changed throughout the life of an annuity. Many distributors are curious about how caps and participation rates evolve over time, Black noted. 

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.