Innovating in Adverse Markets
July 14, 2016 by Jamie Johnson
The third annual Des Moines Insurance Conference, held in Des Moines, IA at the Principal home office on June 28th, 2016, gave attendees had a special treat for lunch and it wasn’t just the great brownies provided. Wink’s CEO, Sheryl J. Moore was the guest speaker at the conference luncheon presenting on “Innovating in Adverse Markets”.
Ms. Moore’s presentation was very well received and enjoyed by the attendees of local insurance executives and members of the CFA Society of Iowa. Moore took the audience through a tour of life insurance and annuity product innovation over the past eight years. “We thought 2008 was challenging, look at the market now!” commented Sheryl.
As the S&P 500 has slowly, somewhat rebounded, the 10 year treasury remains low putting a strain on the environment. Other safe money products are at historic lows such as savings accounts averaging 0.23%, Certifications of Deposit averaging 0.28% and checking accounts averaging at 0.30% (our fellow Iowan’s all know that our average is well below this national average)!
Amidst the challenging market, the regulatory environment has continued to hit our industry hard. Annuity regulation was once a state approval issue and is now a distribution issue. From the 70/10 rule, otherwise known as “10/10 Friendly” reducing surrender charges, product bonuses began using vesting schedules (according to Wink’s Sales & Market Report, 50% of sales are going into 10 year products) and commissions were reduced; to Florida’s Safeguard Our Seniors Act limiting surrender charges to no more than 10 years and the Interstate Insurance Compact states also follow the 70/10 basis for their approval of fixed and indexed annuities. FINRA’s Notice to Members 05-50 indicated in 08/2005 that broker dealers should treat indexed annuities as securities products and maintain a list of their approved indexed annuities; following the “10/10 Compliant,” 70/10 rule as described above.
The AXXX Legislation changed the Guaranteed Universal Life landscape and more recently, Actuarial Guideline 49 limited the amount of interest that can be illustrated on indexed life products.
On the other hand, annuities as we know them: income annuities, traditional fixed deferred annuities, variable deferred annuities, and indexed deferred annuities have continued to evolve. “Innovation has been interesting, to say the least” Moore said with a wink. Product innovation has included indexed annuity hybrid indices, new ways to present rates on indexed annuities, fixed annuity floating rate products, fixed annuity indexed riders, fixed annuity cafeteria plan products, and variable annuity collared products (limit on positive and negative value), bonus vesting, benefit base bonuses, fixed annuity minimum guaranteed surrender values, and even indexed annuities with no accumulation value.
Life insurance products haven’t been asleep as we have seen improvements to participating whole life, term life, traditional universal life, variable universal life and indexed universal life as well with the roll-out of indexed life hybrid indices, indexed life bonuses on indexed gains, and whole life with indexed Paid-Up Addition dividends.
Is there anyone out there that doesn’t think our industry is regulated enough?! Most recently the hot topic of the conference was the upcoming Department of Labor’s Fiduciary Rule that will have indexed annuities left in the crosshairs and classifying the products in the Best Interest Contract Exemption.
The Fiduciary Rule will change distribution as we know it. Some companies will likely serve as Financial Institutions and there will be less indexed annuity products offered. Likely changes to the product will be shortening of surrender charges, bonus removals, and commissions for independent agents being reduced, levelized, offered on a trail basis, or fee-based.
Wink’s Sales & Market Report shows us that 61% of indexed annuity sales are by independent agents. Under the Fiduciary Rule, these independent agents will likely focus on fixed annuity sales versus indexed annuity sales so we will definitely see some changes to the distribution of these products.
Our industry is imaginative. Moore commented how we will adapt, deal with regulatory barriers and our industry will prevail! Participating companies in the conference spoke about their vision and focus in their fireside chats throughout the day. Click HERE to listen in.