The ramifications of proposed Rule 151A have continually been weighed and evaluated since the SEC proposed it in June. If adopted, it would treat index annuities as securities and require agents to be licensed appropriately to sell them. The potential shift in index annuity status has led to commentary and concern from agents, IMOs, clients, politicians, and anyone else with a stake in the index annuity segment, as well as the insurance industry in general.
But none of those groups create the products you sell. Your business is providing clients with the best tools that suit their needs, and those tools are forged by insurance carriers. Their support is instrumental to an agent even in uneventful times, but with an industry-changing rule on the horizon, it becomes critical. So what are the largest index annuity carriers saying and doing about proposed Rule 151A, and what support are they offering agents?
To find out, the Agent's Sales Journal solicited input from executives representing the industry's top carriers. Just as each annuity product has its own path to dealing with 151A. And just as they prefer some annuities over others, agents will likely gravitate more toward certain approaches.
Allianz Life
Gary Bhojwani, president and CEO of Allianz Life, said that the industry has had some time to consider the issue: The SEC first solicited comments on the topic more than a decade ago, and Allianz attended meetings and provided written statements in 2006. But even with all that, he believes the SEC made a mistake with 151A.
"From Allianz's perspective, the rule as currently proposed is wrong. It's not acceptable, and I think carriers need to be very clear on that," Bhojwani said. Still, he does not believe that a simple rejection of the proposed rule is the best approach. Instead, he believes that a coherent counterproposal represents the best chance for the industry to protect itself and the index annuity industry.
Bhojwani also said that allegations that Allianz has been lukewarm in its opposition to -- or even supportive of -- Rule 151A are false. "We've been very clear: We think the FIA is an insurance product, and we think we will prevail on that front," he said. "But there is more to this issue than just how the product gets defined, and that's where you have to have a little more sophistication and you have to make sure you're preparing multiple contingency plans."
According to Bhojwani, part of Allianz's contingency plans involve making sure that whatever happens with 151A, the company and its distribution network are able to continue serving the marketplace. If necessary, the company's marketing organizations are prepared to become branch offices of their wholly owned broker-dealer Questar. The vast majority of them, in fact, already have compliance officers in place.
While about half of Allianz's agents already have a securities license, a large number are wondering what to do next. Bhojwani said that the company has started holding classes for insurance agents who want to consider additional licensing (about 600 registered for the first class in August), and IMOs will have special classes developed for them, as well. He said that Allianz is also developing products in a way that makes it easier for them to become securities-registered if necessary.
"We're doing whatever we can to make sure that our distribution force is educated and prepared," Bhojwani said.
Aviva USA
Aviva USA is also against index annuity scrutiny from the SEC. According to Mark Heitz, president of sales and distribution for Aviva USA, the company's goal is to ensure that clients continue to have access to the products they want.
"We continue to see growing demand from our agents and consumers for these products, and we will work to ensure that customers continue to have access to the product regardless of the outcome," he said.
The company also plans to update its product line to accommodate all agents in light of potential new licensing requirements, and they have pledged to work to ensure agents are prepared for the future.
"We are updating our traditional fixed annuities to ensure that our agents have a strong portfolio of products to offer their customers -- whether they choose to become registered representatives or not," Heitz said.
Midland National Life and North American Life
While many companies are vocal about their opposition to 151A, some believe part of a carrier's job is to encourage agents to become equally vocal. Cindy Reed, senior vice president and chief marketing officer of Sammons Annuity Group (which includes Midland National Life Insurance and North American Life Insurance Company), said that agents should contact legislators to express their opinions.
"Companies should fully support the regulation of these products by the insurance department of each state," Reed explained. "Agents should also do their part by writing a comment letter opposing proposed Rule 151A and make senators and representatives aware, and ask them specifically to contact SEC Chairman Christopher Cox and the SEC commissioners, as well as the chairpersons and members of the Senate Banking and Housing Financial Services Committee, as applicable, to express their concerns." Reed also said that her company kept agents informed through field bulletins as to what 151A means and how the company plans to respond.
Jackson National Life
Andrew Silver, public relations director for Jackson National Life Insurance Company, said that it would be difficult to predict exactly what any particular agent requires from an insurance carrier, aside from proactive and consistent communication. The company deals with independent agents and advisors, each of whom is at their own stage in the business and has their own vision for how their career should grow in the future. He believes that companies should assist producers with product knowledge and suitability, but each agent is different and will have their own specific needs.
Silver also said that the company's existing policies, which include courses and specific paperwork designed to help both agents and clients understand the products and how they work, have helped put them in a good position for the future.
"We feel like the proactive steps, in terms of advisor education with the certification course and the Statement of Understanding requirement (for the client) puts us in a good position moving forward," he said.
Agents complete the certification course to sell the company's fixed index products, and the statement must be signed by the client to verify that they are aware of the product's function and details.
American Equity
Wendy Carlson, general counsel and chief financial officer for American Equity Investment Life Holding Company, said her company is viewing 151A from both legal and business standpoints. Legally, the company sees the proposed rule as flawed and is preparing its own comment to the SEC and working with industry groups regarding the most effective next steps. But Carlson also said that the company has to be ready if the opposition is less successful.
"On the business side of things, we have to prepare for change, should it come," she said.
Of the approximately 50,000 licensed insurance agents appointed with American Equity, Carlson estimates that about 30 percent already have a securities license. Agents with an existing securities license already have broker-dealers, and the company could pursue agreements with those organizations to market their index annuities. The remaining agents would be offered information and assistance in obtaining additional licenses if they want to pursue that option.
One asset the company can utilize is its own broker-dealer, American Equity Capital, which has been in existence (though limited in actual use) for the past 10 years. With a little work, Carlson said it can be used to support agents who obtain new licensing and help the company adapt to a new regulatory environment. "Alongside working with the agents, we need to get our own broker-dealer to the point where we could properly supervise and manage a larger sales force of registered representatives," she said.
Requesting more time
The SEC's timeline can also affect how companies react to 151A. While the comment period ended Sept. 10, the SEC hadreceived requests from companies and organizations to extend it by as much as 120 days, though they chose not to do so. The American Council of Life Insurance (ACLI), a national trade organization with 353 members representing more than 90 percent of the industry's life insurance premiums, annuity considerations, and total assets, sent a formal extension request to the SEC on Aug. 18. In it, the ACLI, citing the importance and complexity of the decision, requested at least 90 (and up to 120) extra days to garner more valuable input from all sources. Steve Brostoff, a spokesman for ACLI, explained that an extension would help cultivate a thorough and effective response to the proposed rule.
"We asked for the extension because we need more time to analyze the proposal, discuss it with our members, and develop a response," Brostoff said. "The proposal touches on a variety of legal, regulatory, structural, and financial concerns, all of which require thorough analysis."
Other parties, such as the National Association of Insurance Commissioners and members of Congress requested a comment period extension, as well. While the comment period was not extended, an SEC spokesman said the staff will not throw out letters received after the fact and will continue to weigh incoming public opinion until they complete the entire review process.
With or without an extension, a decision will eventually be made. If the rule is adopted, agents will face additional licensing to sell index annuities. Just as many insurance carriers are making contingency plans while opposing 151A, those who actually sell the products have their own decisions to make. As Carlson put it, "Agents have some soul-searching to do."
Michael Murillo is a freelance writer and frequent contributor to the Agent's Sales Journal. He can be reached at vivamurillo@hotmail.com.
