Thursday, June 26, 2008

What Will SEC Regulation of Indexed Annuities Mean for Insurance Marketers?

On June 25, the Securities and Exchange Commission announced that it will propose a new regulation regarding indexed annuities (Release number 33-8933, Proposed Rule 151A). The details provided by the SEC regulators made it clear that essentially all currently popular indexed annuities would be considered securities once the regulation goes into effect.

To back up the need for the new regulation, the regulators showed clips from the April 2008 Dateline NBC report called “Tricks of the Trade,” which purports to show abuses in the sale of indexed annuities. The regulators also mentioned the role of surrender charges in exposing purchasers to the risk of loss.

Without question, the insurance companies who write indexed annuities and the insurance industry lobbying organizations that they work with will attempt to vigorously oppose this proposed new regulation. They may even be successful in modifying the regulation or stopping its adoption altogether.

However, if I was the owner or CEO of an insurance marketing organization heavily dependent upon the sale of indexed annuities for my profitability, I would not wait to see how that process plays out. The risk to my business is too great not to work on a solution starting right now.

There are two primary courses of action that an insurance marketing organization can take. One course is to attempt to build the segments of its business that are not under regulatory attack, such as traditional fixed interest rate annuities or life insurance. Fortunately, in today’s environment of low bank CD rates and declining equity returns, traditional fixed interest rate annuities have tremendous appeal. The other course is to become securities licensed by setting up an RIA firm and/or a broker/dealer firm. This will not only allow me to offer indexed annuities, but a whole variety of securities as well.

The problem for annuity marketing organizations is that many agents will choose not to become securities licensed. So, the primary challenge for these annuity marketing organizations will be a training and motivation challenge – to induce as large a portion of their existing agent force as possible to become licensed and productive in the sale of securities.

As in any environment of intense change, there will be firms that aggressively embrace the changes taking place to grow and profit, and there will be complacent firms that suffer dramatic declines in sales and profit. The key question for each marketing organization principal is this: are you willing to make the effort?

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1 comment:

Anonymous said...

Index annuities are appealing because like traditional fixed annuities, your principal and credited interest can never decrease due to market declines, with all interest tax-deferred until you make withdrawals.