Annuity Illustrations
Annuity Marketing, Sales Ideas, Suitability, and Issues by Michael J. Prestwich

•  Insurance companies are now responsible for unsuitable annuity sales which means they will have more exposure to litigation and disciplinary action
• Every annuity transaction must be reviewed for suitability prior to policy issue
• Prior to making annuity recommendation producers must gather information about the consumer in 12 areas of suitability information
• Companies must train and monitor the sales activity of their annuity producers

See Related Articles:

Wisconsin Regulators Eye Annuity Suitability

Insurers to be responsible for fixed-annuity suitability

NAIC Acts On Annuity Suitability - Contract Resales

Suitability 101

 

A Wall Street Journal article published on
March 26, 2010 quotes Senate Banking Committe Chairman, Christopher Dodd, as saying, “It is my hope that shortly after our return on the second week of April that we will come to the floor of the U.S. Senate to debate, hopefully a full-throated debate, about how we reform the financial services sector of our nation.”

If this bill passes, the stronger, tighter, NAIC Suitability in Annuity Transactions Model Regulation passed on March 28, 2010 may become immediately effective in all 50 states.

Here is a quote from page 966 of the Senate’s Restoring American Financial Stability Act of 2010:   …adopted rules with respect to fiduciary or suitability requirements in the sale of annuities that meet or exceed the minimum requirements established by the Suitability in Annuity Transactions Model Regulation of the National Association of Insurance Commissioners (or any successor thereto);

Page 1427 from the House’s Wall Street Reform and Consumer Protection Act of 2009 that passed on December 17, 2009 states: “SUITABILITY AND SUPERVISION RULES FOR ANNUITY PRODUCTS. A State shall have adopted rules that govern suitability requirements in the sale of annuities which shall meet or exceed the minimum requirements established by the National Association of Insurance Commissioners Suitability in Annuity Transactions Model Regulation in effect on the date of the enactment of this Act, or any successor thereto.”

Does this mean that insurance companies and annuity producers may have to be ready for these new laws by June first? Probably not, but they will almost certainly be in effect in most states this year. 

Most agents tell me that they derive 95% of their income from Fixed Indexed Annuities. Most agents believe indexed annuity products are generally the best for the client, but I doubt that this is true 95% of the time. There may be some agents who sell indexed annuities because they pay a higher commission than traditional annuities; or do they?

Who makes more money:

Agent A who sells an indexed annuity, makes a one-time $100,000 sale, and earns $8,000, or

Agent B who sells a five year guarantee product and earns a 3% commission every five years? Here is his commission assuming a 4.50% continuous interest rate:

·         Year 1, commission on $100,000 = 3,000

·         Year 5, commission on $119,252 = 3,739

·         Year 10, commission on $148,610 =  4,659

·         Year 15, commission on $185,194 = 5,806

Agent B’s total commissions over 15 years is  – $17,203 — more than double that of Agent A’s!

Other considerations:

·         Which product is easier to explain and sell?

·         Which product is easier for the client to understand?

·         Which product has a shorter surrender charge?

·         Which product is easier to defend when client suitability is challenged?

I have nothing against Fixed Indexed Annuities. In fact, they are wonderful products when the client understands the product and does not need to touch their money for ten or more years. In many situations a blend of different traditional and indexed products works best.

Successful agents find the best annuity products for their clients and let commissions take care of themselves.