Adding "gee-whiz" features to products doesn't always make things work better, whether it's in insurance or anything else.
For example, I flew Cobra helicopter gunships in Vietnam. They were awesome flying machines and easy to maintain. Then the Army decided it needed a gunship with more "gee-whiz" buttons and phased out Cobras for Apaches. The Apaches have more "bells and whistles," but they spend more time in maintenance than in the air. Combat readiness has suffered.
Having more "gee-whiz" buttons does not make an annuity function better either.
When I first started selling fixed annuities in the late 1970s, there were only a handful of single premium deferred annuities on the market. They were simple to understand and easy to sell.
Now, thousands are available and all work differently. Many have bells and whistles that few agents, fewer clients, and many home office personnel simply do not understand. Lawsuits and high expenses have followed, and annuity sales have suffered due to the resulting bad publicity.
A client who teaches flying lessons reminds me of another problem. This client says new trainer aircraft can easily cost $250,000, with half the cost attributed to product liability insurance. But now the cost to learn to fly has gone up dramatically, causing fewer people to seek a pilot's license and fewer new aircraft to be sold.
Similarly, for many fixed annuity companies, the cost of doing business has gone up due to being sued for what are essentially "product liability" cases.
This has led to decreasing company profits and decreasing rates available to be credited to fixed annuities, resulting in lower achievable annuity sales volume. The lawsuits have also caused requirements for more disclosure/suitability forms, and, in some states, annuity specific training in order for agents to sell any annuity.
As I see it, if insurance commissioners would not allow "trash annuities" to be sold in their states, most of the lawsuits, extra forms and training would not be needed.
Another client of mine, who is an economics professor at the University of Texas System, told me that she used to teach the basics of supply and demand with an emphasis on how politics affects economics. Now, however, she teaches that the most important influence in today's economics is media bias. In particular, she says, financial columnists and television commentators sway public, political, and rating agency opinions at will.
