What you need to know about how the insurance industry is regulated
By Susan Voss, Insurance Commissioner for Iowa
In recent months, there have been a number of articles featuring stories about insurance agents using unfair or unethical practices when selling products to older Americans and/or Veterans. As the current Iowa Insurance Commissioner, I would like to point what many of these articles fail to highlight: the insurance industry and state regulators have put a number of protections in place to ensure that annuities are sold both ethically and fairly to consumers. And, while there may be a few bad actors out there—which is unfortunately the case with any product being marketed and sold—they shouldn’t overshadow the fact that the majority of those selling fixed indexed annuities follow strict suitability guidelines. These guidelines, which have been put in place to protect consumers, include the following:
- Every company selling fixed indexed annuities is required by the National Association of Insurance Commissioners (NAIC) to review every sale to make sure that the product is suitable for the consumer.
- Insurance agents that sell fixed annuities are mandated to participate in product-specific training that is far more comprehensive than the sales product training for securities brokers who sell mutual funds, for instance.
- Insurance agents must complete a four-credit-hour training course approved by the state’s department of insurance and taught by a regulator-approved education provider.
Product reviews and some complaints are a good way of gauging consumer satisfaction with the annuities sales process. There are actually very few complaints filed against insurance brokers who sell fixed indexed annuities. Recent complaint data shows that there was only one fixed indexed annuity complaint for every $660 million of premium. In other words, 99.99% of fixed indexed annuity buyers did not file a complaint.
All that being said, consumers should continue to do their due diligence when considering the purchase of any financial product. For consumers interested in deferred annuities and more specifically, fixed index annuities, the NAIC recommends asking your agent or insurance company the following key questions:
- How long is the term?
- What is the guaranteed minimum interest rate?
- What is the participation rate? For how long is the participation rate guaranteed?
- Is there a minimum participation rate?
- Does my contract have an interest rate cap? What is it?
- Does my contract have an interest rate floor? What is it?
- Is interest rate averaging used? How does it work?
- Is interest compounded during a term?
- Is there a margin, spread, or administrative fee? Is that in addition to or instead of a participation rate?
- What indexing method is used in my contract?
- What are the surrender charges or penalties if I want to end my contract early and take out all of my money?
- Can I get a partial withdrawal without paying charges or losing interest?
- Does my contract have vesting? If so, what is the rate of vesting?
For information specific to avoiding financial scams, check out this recent blog post from Kim O’Brien, President and CEO of National Association for Fixed Annuities (NAFA).