Date posted: June 14, 2013
Suitability guidelines are very important for annuity products. Those of us with good ethical standards need to make sure that the industry is treating consumers well. Two groups putting suitability standards into effect are FINRA and the NAIC. I just updated a blog post about suitability standards from the two organizations as Minnesota became the 31st state to adopt the NAIC’s guidelines.
Written by Rachel Summit
Follow Rachel, aka Finance Mama, on Twitter and Google+
Date posted: January 28, 2013
The U.S. Government Accountability Office has been researching annuities for a few years to see if they want to recommend them to Americans as the future of retirement income streams. The GAO’s latest report, “Retirement Security: Annuities with Guaranteed Lifetime Withdrawals Have Both Benefits and Risks, But Regulation Varies across States,” is summarized by Chris McMahon of Insurance Networking News. McMahon’s article “CDAs and GLWBs Help Retirees Avoid Outliving Assets,” says that there are two sides to the story. Variable annuities with guaranteed living withdrawal benefits and contingent deferred annuities are a great way to guarantee that one will not outlive their retirement savings. But both products come with some risk to the consumer and to the issuing insurance company, so we need to make sure that we are all informed.
By comparing the benefits and risks of both types of annuities, the GAO was able to determine where regulations might need some tweaking and where they are just right. They also looked at the risks to insurance companies because regulations affect those as well. The Insured Retirement Institute’s Cathy Weatherford said that her organization supports the GAO’s findings that these annuity products help retirees maintain their income throughout their lifetime. This non-profit organization helps the insured retirement industry as a whole, including those selling annuity products and those buying them.
Two risks associated with annuities mentioned in the GAO’s report were that consumers could potentially buy an unsuitable annuity for them or they could make a withdrawal decision that is not in their best interest. This definitely happens, so the government recommends speaking with a financial expert about your individual situation and researching your product before making any final decision. The biggest risk to insurance companies is that they will not be able to meet their payout requirement if they aren’t careful with their financial hedging and the amount and type of annuities that they sell.
The IRI’s Weatherford boldly states that every single owner of an annuity product continued receiving their annuity payments throughout the entire financial crisis of the past half decade or so. Because of this, she believes that the federal and state regulations in place currently are very effective. Since variable annuities are classified as both securities and insurance, they are subject to the federal regulations on securities and the state regulations on insurance products. CDAs are a newer product that currently adheres to the state level insurance and annuity regulations. State guaranty funds don’t cover CDAs yet, but the National Association of Insurance Commissioners is working with states to see if they will cover this new deferred annuity as well. Variable annuities with GLWBs and CDAs are great for guaranteeing retirement income, just make sure you are aware of both the benefits and potential risks.
Written by Rachel Summit
Follow Rachel, aka Finance Mama, on Twitter http://twitter.com/#!/financemama
Date posted: August 7, 2011
According to the National Underwriter article “NAIC Panel: History is Just History” by Allison Bell, history is unlikely to repeat itself in regards to annuities. The National Association of Insurance Commissioners’ Life Insurance and Annuities Committee is working to revise the way that illustrations that compare annuities are shown. They have what they call an “exposure draft” to revise the Annuity Disclosure Model Regulation. An exposure draft is one step in the process of revising a model. Comments will now be reviewed on the proposed revision regarding illustrations.
“Section 6″ is the proposed change and it would require illustrations to be clearly labeled and include a disclosure statement. All costs, fees, riders, and optional features have to be included in the annuity illustration. For example, illustrations of the non-guaranteed amounts related to fixed indexed annuities have to not only show the history of the past ten years, but also the best and worst ten year span over the past twenty years. The NAIC has determined that it is not likely that history will repeat itself when you compare annuities. Disclosures have to let investors know that while illustrations assume that history will repeat itself, it is likely that history will not. Returns may be higher or lower than the illustrations show, but they probably won’t be the same.
Date posted: June 24, 2011
Four more states and the District of Columbia will ensure that consumers are getting the best annuities by the end of this summer, according to Linda Koco of Insurance News Net. In “More Annuity Suitability Rules Going into Effect This Summer,” the Annuity News editor says that the newest states to adopt the NAIC’s rules will be Rhode Island, Oregon, Ohio, North Dakota and Washington D.C. The NAIC’s Suitability of Annuity Transactions Model Regulation (NAIC 2010) has been a model for many states to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act. All states must comply by June 16, 2013. States must ensure that insurance companies are selling consumers the best annuities for their situation and require agents to take a four hour class about annuities and their impact on consumers and taxes.
There are 17 states and territories that already have laws mimicking NAIC 2010. Six states have plans already in the works, and a total of 28 states are expected to have working plans this year. The Insured Retirement Institute (IRI) and RegEd, a compliance and education firm, are working together to provide the annuity training to agents and state governments. The Oregon Department of Consumer and Business Services found that most insurance companies and agents have been receptive to the new rules, as long as they are similar to the NAIC guidelines. In 2005, the state issued guidelines deterring the sale of unsuitable annuity products and these new guidelines have built from that initial model. Products like the 5 year fixed annuity and other annuities must be the best choice for the consumer in order to pass the standard ruling. All of the NAIC regulations keep insurers and agents accountable for protecting consumers from products that they should not buy because they aren’t in their best interest.
Date posted: May 13, 2011
New York State is the latest to issue legislation adopting the National Association of Insurance Commissioners’ guidelines. Errol Baddoo of Annuity News Journal discusses the new regulations in “New York Insurance Department Changes Regulations.” The New York State Insurance Department has two new regulations dealing with annuities and other insurance products. Both are meant to protect consumers, especially senior citizens, against purchasing products that are not suitable for their particular situation.
The first legislation, Regulation 199, makes sure that advisors and brokers do not use false titles to imply that they have a specialty that doesn’t exist. This pertains to senior citizens most often because deceptive brokers use titles like “certified senior advisor” to try and attract immediate annuity or life insurance business from senior citizens. The regulation bans the use of these titles in all advertising materials, including business cards, print ads, and television commercials.
Regulation 187 deals with suitability standards in the sale of annuities and other insurance products. Salespeople are banned from selling unsuitable products to consumers, especially when the consumers don’t understand what they are buying. Brokers and advisors must sell consumers the best annuities and life insurance for their particular situation and make sure that the consumers are fully informed regarding the products. They have to be aware of all fees, tax liabilities, and any surrender charges as well as all other details for the products they are planning to purchase.