An official from the Securities and Exchange Commission recently reiterated the SEC's position that consumers need to receive user-friendly, easily understood disclosure forms, according to a December 4, 2006, National Underwriter article by Assistant Editor Matt Brady.
This includes disclosure and sales practices for variable annuities.
It's not a new position. In one way or another, the SEC has pushed for simplification and clarity for at least 10 years. That certainly was the impetus for its Plain English initiative several years back.
As noted in this column many times, simplification and clarity are laudable goals. After all, prospectuses that run 125 pages long are a bear to digest, even for sophisticated customers and even when presented in Plain English with ample use of graphics.
That said, it is hard to imagine creating user-friendly, easily understood disclosure forms without also pruning back the systems and business processes that are the product's backbone. These are at the root of much of the complexity; if they are simplified and/or honed, there will be less to disclose, explain and what-if.
Further, it is hard to imagine such simplification occurring in an environment that seems primed to create more complexity, not less.
For example, now that the Pension Protection Act of 2006 has been enacted, there will likely be a flurry of development of "combination" or "hybrid" products where annuities can include long term care coverage. It's a safe bet that these new products will not be simple. After all, LTC insurance is fairly complex. Hook it onto a VA and, bingo, you've got more complexity.
(Most hybrids probably will start out using the fixed annuity chassis, for the very reason that these are simpler products. But some VAs will likely go hybrid too.)
This is not to say all hybrids will be jungles. Some developers believe the products can be made to be very unified designs.
Even so, many insurance product developers do not take kindly to the idea of simplifying products–hybrids or any other kind.
