Federal Insurance Office Supports National Annuity Suitability Standards
September 29, 2015 by Frank Klimko, Washington correspondent, BestWeek: frank.klimko@ambest.com
WASHINGTON – The Federal Insurance Office warned unless more states adopt a national annuity suitability standard for the sale of such products and better protect consumers, federal regulators could step in, FIO said in a Sept. 28 report.
“As unprecedented numbers of seniors reach retirement age with increased longevity, and as life insurers continue to introduce more complex products tailored to consumer demand, the absence of national annuity suitability standards is increasingly problematic,” the report said. “In the absence of more uniform adoption and implementation of the Model Suitability Regulation, federal authorities should consider appropriate action.”
The FIO said it was worried because annuities subject to state oversight are becoming both more complex and more popular. One such annuity, the fixed indexed annuity, achieved a record sales total of $48 billion in 2014, up 23% from 2013 and is now the second-leading annuity product by premium volume behind variable annuities, the report said.
Overall, the insurance industry got high marks for its record financial health.
Through last year, the U.S. insurance industry continued to report consecutive years of good financial performance and remained in sound financial condition. Positive net income again raised reported surplus of both the life/health and the property/casualty sectors to record levels. The L/H sector reported approximately $354 billion of capital and surplus at the end of 2014 (compared with $332 billion in 2013) and the P/C sector reported approximately $689 billion (up from $665 billion, 2013) in policyholders’ surplus, the report said.
Both sectors also recorded increases in net written premiums in 2014. The L/H sector’s net written premiums reached $648 billion in 2014, largely the result of growth in sales of annuity products. P/C sector net written premiums were $503 billion in 2014, a record-high level, the report said.
Despite that, net income for both declined from the record levels set in 2013. Growth in L/H sector revenues, was outpaced by growth in total expenses, and led to a 23% decline in pretax income compared with 2013. The P/C sector reported a 9% decrease in net income, mainly due to a 19% decline in underwriting gains, the report said.
The report made a number of new recommendations. The FIO noted the June decision of the Supreme Court regarding same-sex marriage reduced the potentially discriminatory impact of the use of marital status as an underwriting or rating consideration. The report recommended states continue to assess whether marital status is an appropriate underwriting or rating consideration due to the potential effect on the cost of insurance for widowed and divorced individuals, the report said.
Some recent studies showed marital status could contribute significantly to a consumer’s premium. One study found after the death of a spouse, a widower may pay as much as 20% more for personal automobile insurance, the report said.
The report also recommended state insurance regulators consider whether national consumer protection standards be adopted for indexed universal life insurance products, which now account for approximately 20% of all individual life insurance premiums in this country, the report said.
The report noted the FIO is beginning to address challenges in how to manage the mandatory collection of terrorism insurance data necessary for a report to help Congress evaluate the Terrorism Risk Insurance Act. The FIO has begun meetings with the insurance industry and promised to share the TRIA data it collects as part of the annual reports (Best’s News Service, Aug. 16, 2015).
