Index Proposal Could Make Some Annuities Look Too Good: Consumer Group
November 22, 2018 by Allison Bell
The Center for Economic Justice (CEJ) says a new indexed annuity regulation proposal could help dishonest life insurers fool consumers.
The proposal could affect how life insurers illustrate the performance of indexed annuities featuring relatively new investment indexes.
If regulators aren’t careful, new annuity illustration rules could help a life insurer hide how an investment index would perform in a bad market downturn, the CEJ says.
The drafters of the proposal might have had good intentions, but “the change is an invitation to data mine recent historical returns to create an index favorable for illustration, but which dramatically misrepresents the actual risk-return situation for the consumer,” the CEJ writes in a comment letter sent to the Annuity Disclosure Working Group.
One problem, the CEJ says, is that an insurer could use a 10-year-old investment index to hide what might have happened to an annuity holder during the 2007-2009 Great Recession.
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