The current year was not revolutionary on the index annuity product innovation front. Return of premium options were made available on a few new products, and the concept of soft caps was revisited. However, carriers pretty much stuck with the tried and true.
The split in product design based on the intended distribution channel did continue through 2005. The bulk of the products are designed to appeal to the annuity seller market channel with the attendant premium bonuses, higher commissions and longer surrender charges needed to pay for it all.
However, a growing number of carriers came out with annuities offering more straightforward designs, 5- to 7-year surrender periods and lower commissions.
Although the agent has strongly influenced product design in the past, next year could see designs driven by hints of regulatory desires if not by direct fiat.
Recently a handful of states have implemented, or have discussed implementing, a 10/10 rule. This means the annuity will not receive approval if the contract's surrender charge exceeds 10 years, or if the first-year surrender penalty is in excess of 10%.
If the 10/10 movement gathers steam, it could directly challenge the current marketplace of high premium bonuses and products with double-digit commissions.
Over three-quarters of index annuities have maximum issue ages of 85 or older. Although the maximum issue age is set by the carrier and not by statute, and even though complaints to regulators do not seem to increase with age of the customer, it does appear that the loudness of any claim of "senior abuse" increases geometrically as age increases.
We are hearing discussions from carriers about lowering maximum issue ages, or dramatically reducing the surrender charge for purchasers over age 75.
