Proposed annuity standards for variable and non-variable annuities were advanced on July 14 by a regulatory subgroup and sent up to the Product Standards Committee of the Interstate Insurance Product Regulation Commission. The standards that were advanced contain a controversial provision which would eliminate guaranteed living benefits and guaranteed minimum death benefits if the contract is sold to an institutional investor (see earlier posts.)
Life insurers argue that the behavior of individuals is different than institutional investors and that institutional investors are more likely to use guarantees for financial reasons than reasons of actual need. They argued throughout the three months it was discussed that if the language was not put in place, the cost of these guarantees could become prohibitive because companies would have to hedge against the added risk these provisions will be exercised.
Those who oppose say that it is an issue of contract rights and limiting the right to sell something that they paid for diminishes the value of what the consumer purchased.
The IIPRC process allows for several more periods of comment and Brian Staples of Right LLC, Versailles, Ky., representing the Life Insurance Settlement Association, Orlando, Fla., says that he plans to pursue the issue. In an interview with Staples, he says that consumer representatives and the AARP, Washington, need to be made aware of a standard provision that may be detrimental to seniors and their ability to maintain liquidity. Staples says that having the option of that liquidity is needed because of surrender charges that are often associated with these annuities.