A group of state insurance regulators voted yesterday to adopt amendments to an annuity disclosure model that would give customers a detailed breakdown of product features.
A group of state insurance regulators voted yesterday to adopt amendments to an annuity disclosure model that would give customers a detailed breakdown of product features.
Regulators in the National Association of Insurance Commissioners' joint executive committee plenary voted unanimously (with one abstention) to proceed with the amendments to the Annuity Disclosure Model Regulation, according to Jim Mumford, first deputy commissioner in Iowa's insurance division. The committee met via conference call because its summer meeting was canceled as a result of Hurricane Irene.
Different from the NAIC's annuity suitability rule, the annuity disclosure model rule would require that clients receive a buyer's guide when purchasing an annuity.
Carriers also would have to include a disclosure form that describes the contract, its benefits and how it works. For fixed indexed annuities, the disclosure must show the basis for caps, spread and participation rates. Customers also would get an explanation of the impact of any riders, along with information on the contract's federal tax status and the penalties that apply to withdrawals.
The most prominent amendment to the disclosure model reg, however, is the addition of standards for annuity illustrations, which are provided to the customer to show how the product has performed. For fixed indexed annuities, carriers would have to show how a given index has performed over the last 10 years, as well as the index's best and worst historical performance over a decade.
The changes make life a little easier for independent marketing organizations and broker-dealers that sell fixed indexed annuities. In the past, carriers haven't had a standardized way of illustrating their policies, particularly those with living benefits, distributors noted.
The committee also adopted a bulletin to address the issue of stranger-originated annuities — the act of taking out an annuity on an ill person in the hope of making a short-term aggressive market play and cashing in on the person's death benefits.
The bulletin is a memo to insurers, encouraging them to take on safeguards to limit their exposure to these transactions.
Regulators encourage insurers to review their chargeback policies and consider reserving the right to adjust brokers' commissions if a death benefit is paid within the first policy year and the policy looks like a STOA transaction. Insurance companies are also encouraged to create detection methods to identify and flag STOA sales and the brokers involved.
