ANNUITIES
Annuity illustrations:
Liability agents don’t need
“I learned from some
of my carrier clients
that they were paying
to have better ratings
in the software! “
When it comes to life insurance sales, you cannot close the deal without an illustration.
Thanks to the National Association of Insurance Commissioner’s (NAIC’s) Life Insurance
Illustration Model Regulation, there are very few instances where one need not collect an
illustration to get a life policy issued. However, when it comes to the annuity side of the house,
illustrations are optional.
The Annuity Disclosure Model Reg. indicates that “An insurer or producer may elect to
provide a consumer an illustration at any time, provided…” One may decide to provide an
illustration, but they may not.
When I started in the insurance business 20 years ago, salespeople didn’t use illustrations
for annuity sales- even indexed annuity cases. When selling a fixed annuity, the client received
the expectation that their money would grow at a fixed rate. When selling an indexed annuity,
the client understood they may receive as little as 0.00%, but as high as the cap. On the
variable side, purchasers knew if the market went up, they would get the upside (less fees),
and if declined, they would experience losses (plus fees).
How did we get here?
There were a great many vendors offering “annuity illustrations” when I started. One
vendor was frequently cited for having inaccurate product information feeding their software.
Another graded annuities based on their projected performance, with grades: ‘A,’ ‘B,’ ‘C,’ ‘D,’
or ‘F.’ I learned from some of my carrier clients that they were paying to have better ratings
in the software! There weren’t vendor-staffed actuaries to ensure accuracy of the projected
values, much less working with the carriers. It scared the death out of me- and consumers
were basing their purchase decisions on this garbage! So, I began rallying the NAIC to enact
regulation that would reel-in the bad characters, ensuring carriers had control over their
illustrations, and providing something consistent to salespeople to use as a tool.
Sheryl J. Moore is President and
CEO of the life and annuity market
research firm of Wink, Inc. Her
company provides competitive
intelligence, market research,
product development, consulting
services and insight to financial
services companies.
She may be reached at
[email protected].
26
Perspectives
Q3 2019
Whomever has highest illustrated values wins!
What we have today isn’t optimal. It fuels an arms race not unlike what has been happening
on the life side for decades.
It’s sad. Many of these illustrations are unrealistic - income rider payouts upwards of 40%...
Come on! Such illustrations do nothing but put salespeople in a position of liability and set the
insurance carriers up for future litigation. Where does it end?
Epiphany!
I was speaking recently with a wholesaler that works with structured annuities (a
middle-ground between variable and indexed annuities, in terms of risk. I asked him about
illustrations on these new annuities. He replied, “Oh! You don’t need an illustration with this
product. The most you can earn is [10.00%] and the most you can lose is [10.00%]. You don’t
need an illustration for that.” Two days later, I asked another structured annuity wholesaler,
and received the same response.
Let’s go back to the basics. I suggest we don’t need illustrations to close annuity sales-
especially on products where the performance is contingent on an outside fund or index.
Less work. Less liability. Less unrealistic expectations
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