The Economic Impact of Rule 151A
January 3, 2010 by Sheryl J. Moore
Even if you HATE indexed annuities, Rule 151A is something you need to be concerned about.
This rule, which effectively redefines indexed annuities as securities, is how the SEC is opening the door to federal regulation of life insurance. The Securities and Exchange Commission has a mission to be the preeminent financial services regulator; regulating insurance, banks, securities, and more. If you don’t believe me, just do a Yahoo! search on any of the following:
- SEC wants to regulate hedge funds
- SEC wants to regulate insurance
- SEC wants to regulate financial markets
- SEC wants to regulate [you fill in the blank]
Do you really think the SEC is doing this because they think indexed insurance products put the client at risk? Then how do you explain the following:
1. Under the SEC’s new definition, an annuity is not an “annuity contract” (i.e. insurance) if:
A) the crediting method is based on the performance of a security or index, and
B). the amount credited is likely to exceed the minimum guarantee
2. That would make every indexed annuity offered today a securities product, as opposed to insurance
3. According to that same definition, every indexed life insurance product would also be a security
4. However, the Securities and Exchange Commission has specifically stated on page 47 of Rule 151A:
Thus, rule 151A itself will not apply to indexed life insurance policies, in which the cash value of the policy is credited with a guaranteed minimum return and a securities-linked return.
Doesn’t that strike you as odd? The SEC says their entire purpose for proposing Rule 151A is to protect the client from risk. In reality, this may be more about fees than anything else.
- Indexed Annuity sales 2008: $26,752,278,197
- Indexed Life sales 2008: $539,014,980
Perhaps you think this is about escalating complaints on indexed annuities. Think again. According to the National Association of Insurance Commissioner’s Closed Complaint Database:
- In 2007, indexed annuity complaints averaged 4.1 per company (in comparison, variable annuity complaints averaged 5.9 per company)
- In 2008, indexed annuity complaints averaged 3.8 per company (in comparison, variable annuity complaints averaged 7.1 per company)
So, not only have indexed annuity complaints declined, but variable annuity complaints are rising! In addition, indexed annuity complaints are far fewer than the complaints on products that the SEC is already regulating!
The SEC will start their federal regulation of insurance scheme with indexed annuities…but what will be next? Do you want SEC regulation of:
- Term life insurance
- Fixed annuities
- Whole life insurance
- Universal life insurance
If you don’t, then GET SOME SKIN IN THE GAME! Stop the SEC’s plans to regulate insurance products by standing up against Rule 151A, and supporting the Indexed Annuities and Insurance Products Classification Act of 2009! As of January 1, we have 12 co-sponsors in the Senate, and 65 co-sponsors in the House on bills S1389 and HR2733 respectively. THIS IS STILL NOT ENOUGH! Please contact your state Congress person and Representatives, and let them know how Rule 151A will affect your business and clients. Write them, call them, stop by their offices and visit with them. If you do not get involved now, there will not be a second chance.
The bottom line is that Rule 151A will cost the insurance industry far more than $2.2 billion dollars annually.
Rule 151A will cost our nation more than 600,000 insurance jobs.
Rule 151A will cause more than 37,000 insurance agents to lose business or get out of the business completely.
OUR NATION CANNOT AFFORD THIS DUPLICATIVE LEGISLATION AT A TIME WHEN OUR ECONOMY IS ALREADY FAILING.
We have conducted targeted economic impact studies of how Rule 151A will affect seven different states. Please feel free to use these presentations and bullets in your appeals to your legislators. Thanks so much for your time, efforts, and support. We couldn’t do this without you, and we look forward to working with you in the future in protecting your client’s money from market downturns, while still providing limited upside growth potential. GO INDEXED ANNUITIES!!!
-Sheryl J. Moore, President and CEO of AnnuitySpecs.com