The Big Chill For Annuities In 2017
December 27, 2016 by Ben Mattlin
With the Department of Labor’s 1,000-page fiduciary regulations due to take effect in April 2017, and a new anti-regulatory administration about to take office in Washington, insurance carriers are facing a double whammy of uncertainty.
“Going forward, there just won’t be as many developments of new financial products simply because the insurance companies aren’t sure what exactly fits in and what doesn’t,” says John Rodgers, chief operating officer, financial services and retail, at New York-based SSA & Co. “They might think about trying to design products, but with these barriers in the way they are mostly going to wait and see what happens.”
The DOL ruling impacts many types of annuities and the distribution of insurance policies. But Rodgers foresees a chilling effect on the industry as a whole. In fact, he anticipates there will be fewer insurance products on the market in the year ahead. “The products may not go away, but the number sold will likely be scaled back,” he predicts.
His reasons are manifold. With a lack of clarity over what exactly the new rules require, if they even remain in place, insurance companies are reluctant to do anything. “This uncertainty creates an unbelievable burden—a bottleneck that’s going to cause a backlog,” he maintains.
Slowing down innovation will in turn impact industry growth — “especially with legacy companies,” he says. “New products are really all they have to bring in new customers.”
He points out that there’s still a full quarter before the new regs are supposed to take effect. “Some people are probably hoping the new administration jumps in and makes adjustments before April,” he says. “You may benefit from being the last one to take some type of action, if the ruling is reversed.”
Rodgers is increasingly convinced that the Trump administration will act swiftly to remove such regulatory bottlenecks, though to date nothing explicitly related to the fiduciary ruling has been discussed publicly.
“It looks like the administration is going after a lot of regulations, particularly those that are causing an uproar and a serious disadvantage for long-standing businesses,” he says.
To be sure, some carriers have already begun shifting from the traditional commission-based compensation model to fee-based compensation. “That alone is a pretty significant shift,” Rodgers contends. “It could have ramifications across the industry — a multi-quarter impact on an industry that isn’t seeing a lot of growth to start with.”
It’s also been suggested that carriers might solve some of their compliance issues by selling more through third-party channels. Rodgers isn’t convinced. “The larger, long-standing insurance companies are conservative, and I think they have reservations about going with those types of partnerships.”
Of course, the intent of the regs — and, arguably, of the anti-regulatory movement, too—is to benefit clients. Whether or not this pans out remains to be seen. “At the end of the day, although this is supposed to be in the customer’s best interest and reduce conflicts, it’s going to leave them a little bit out in the cold,” says Rodgers. “They won’t know whom to turn to or whom to trust.”
