Annuity Standards, Property Rights Argued

Annuity contract holder property rights continues to be the focus of the development of annuity product standards for the Interstate Insurance Product Regulation Commission, a single point of filing for life insurance products developed by the National Association of Insurance Commissioners, Kansas City, Mo.

The annuity subgroup hopes to have standards for annuities with guaranteed living benefits ready before the summer meeting next month so that they can pass those standards up through the IIPRC. That doesn’t mean that they would be adopted or that interested parties would not have additional time to comment on those standards before they are fully adopted by the full IIPRC body.

The issue of assignment started the discussion and whether limiting assignability is really limiting a contract holder’s rights. A discussion ensued over whether that would be the case for non-assignable contracts. One argument that was made was that if the contract is non-assignable, as long as that was disclosed properly at the time of sale, then that should not be an issue. There would not be a right to assign the contract. A counterargument was made that there has to be a right to make an assignment. Scott Cipinko argued that situations such as a contract with an irrevocable beneficiary had to be considered in the development of a standard.

A third argument was threaded into the conversation suggesting that a solution for the contract holder would be to do a 1035 exchange and exchange the non-assignable contract for an assignable annuity. But Florida said that technically, a contract holder would have to assign the annuity to the new insurance company who would then surrender it an issue a new contract, so an assignment would still be involved.
The discussion came full circle to the point of whether an annuity owner’s rights were being limited if they couldn’t assign a contract.

Cande Olsen, representing life insurers, explained that the reason the issue needs to be addressed is that insurers anticipate one type of behavior from individual contract holders and a different behavior from institutional contract holders and price their products accordingly. When an individual sells a contract to an institution, that behavior changes or has the potential to change.

Olsen said that companies should at least be able to say that if a contract with a guaranteed living benefit is assigned then that rider would terminate unless there was an instance such as it being assigned to a spouse.

But Brian Staples of Right LLC, said that it raises an issue of discrimination. “The settlement industry is not in favor of a restriction of the secondary market to help consumers with an exit strategy to an insurance product.”

Miriam Krol of the American Council of Life Insurers, countered that there was fair and unfair discrimination. Fair discrimination occurs when there is actuarial evidence that something will happen and occurs in differences in product pricing such as male/female and younger/older. And, there is a difference in behavior between individual and institutional contract holders, Olsen added.