The cost for the fixed indexed annuity industry to comply with the Securities and Exchange Commission's Proposed Rule 151A, which would require FIAs to be treated as securities, will be staggering.
It will top $2 billion, according to the Economic Impact Analysis performed recently by the National Association for Fixed Annuities, Milwaukee.
These costs and other problems with Proposed Rule 151A should be addressed.
Even in the strongest of economic times, let alone today's turbulence and economic crisis, the cost noted above is extremely burdensome to the thousands of small business owners that sell and distribute the affected products. Most will have to suspend operations and their employees' livelihoods until they can meet the additional regulatory requirements, or they may need to find a new business.
A number of problems will follow from the cost pressures. For instance, the increased costs will reduce the availability of indexed products for consumers. In fact, the costs of registering FIAs as securities and building new distribution networks are likely to make the contracts prohibitively expensive and unprofitable for some insurers, causing them to leave the market.
The Proposing Release even recognizes that decreased competition could adversely affect consumers' access to insurance products offering index linkage, leading to consumers receiving "less favorable terms [on] insurance products and other financial products, such as increases in direct or indirect fees."
Further, the proposal's requirement that FIAs be sold exclusively through broker-dealers and not through traditional and established agent networks would severely limit, if not polarize, sales of these products–products that are very much in demand ($75 billion over the last 3 years).
Complicating matters is that if Proposed Rule 151A is finalized, broker-dealers will need to take time to obtain carrier appointments, train on FIAs and put those products on their shelves. Insurance agents will also need to take time–to train and obtain their securities license, which in its present state, doesn't include any additional training on FIAs. Meanwhile, Americans seeking to purchase FIAs will be uncertain about where to go to obtain the product.
