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Annuities are Growing by Leaps and Bounds—Do You Sell Them? |  The Regulatory Investigations’ Upside | AIA Taps Former Governor, RNC Chair as CEO |  Big "I" Takes On
Pro-OFC Lobby |  More Than Just Beach Reading | Big "I" National News

L & H   T R E N D S
Annuities are Growing by Leaps and
Bounds—Do You Sell Them?

If you are like me, you get e-mail advertisements from firms promoting the sale of various annuity products. Commissions advertised in these offers often exceed 10%. Being a primarily p-c oriented person, I usually ignored them. But that was before Jonathan Clements front-page article in June 8 Wall Street Journal’s Personal Journal section called: "What Your Insurance Agent Is Learning from the ‘Annuity Gladiator.’"

The front-page article piqued my curiosity. After looking into annuities, I found the annuity business has grown by leaps and bounds during the past 10 years. According to the 2004 Edition of Best’s Life and Health Aggregates and Averages, the annual growth rate in premium-deposits is close to 10% a year since 1995. Individual annuities represent more premiums to the life industry than ordinary and group life insurance combined. Together with group products, annuities are more than half the total life-health industry premiums at more than $250 billion. Finally, take a look at the chart below. I was surprised to see commissions paid out on this product have grown from about 5% to almost 7% as a percent of premium-deposits.

Having watched our industry wrestle with commission-related issues on the p-c side, I have this observation: If you are selling a lot of annuities, I urge you to assess your practices, disclosures and file documentation. In the age of Eliot Spitzer, you need to view your actions and documentation as if they might one day be a Congressional Exhibit.

Also, if you sell annuities with above-average commissions, I urge you to consider the following sentence taken from the Mississippi Secretary of State’s press release describing a successful regulatory action with variable annuities: "Variable annuities typically generate high commissions for the selling broker, usually about 6 percent of the purchase amount." If that regulatory body believes 6% is a "high commission," how would they view an annuity that pays twice as much?

Resources:
1. WSJ.com - Sales School: What Your Insurance Agent Is Learning From the 'Annuity Gladiator'* This article will be available to non-subscribers of the Online Journal for up to seven days.
2. www.dfi.wa.gov/sd/toptenfrauds_nr.htm (Top Ten Frauds: Variable Annuities is #10)
3. http://asc.state.al.us/News/2004%20News/3-29-04AmSouthFinedALMS.htm (Amsouth Case: State of Mississippi Sec of State Release: "Variable annuities are complex products that contain both securities and insurance components. While offering tax-deferral, death benefit features, and optional riders, these benefits come with strings attached and additional costs. Variable annuities typically generate high commissions for the selling broker, usually about 6 percent of the purchase amount.")

Paul Buse ( paul.buse@iiaba.net) is a licensed agent and president of Big "I" Advantage, IIABA’s for-profit subsidiary. 

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P R O D U C E R   C O M P E N S A T I O N   I S S U E   U P D A T E
The Regulatory Investigations’ Upside

Insurance executives expect to survive and thrive in the wake of scrutiny of the industry’s practices relative to contingent compensation. According to a panel at Standard & Poor’s "Insurance 2005: Under the Microscope," the industry has made positive changes to its business model.

The panel cited "a combination of higher premium commissions, a broader array of insurance products for their clients, and better alignment of costs and expenses" as the factors that will help brokers "survive the sunset of the contingent-commission era."

Davis Eslick, chairman of USI Holdings Corp., and Patrick G. Ryan, executive chairman of Aon Corp., were the brokers on the panel. According to an S&P press release, "both agreed that although settlements to end contingent commissions by the four large national brokers...will hurt the industry in the short run because of lost income, brokers will benefit over the long term because of the more transparent environment that has been created."

S&P Director Steve Ader discussed the possible impact of new business models on smaller clients. Under the new models, he speculated that small clients may be unprofitable for big brokers because the business of such clients no longer aggregates to help with volume-based contingent commissions, forcing the brokers to possibly drop them. Ader pointed out that it may open up opportunities for regional brokers.

Also emerging from the S&P conference is a belief that the investigations of New York Attorney General Eliot Spitzer ultimately may be a good thing. According to a survey of 100 executives and analysts at the conference, three-quarters of respondents said that the investigations will help the industry in the long run.

"It’s becoming apparent that the costs of fines and settlements will be manageable, so survey respondents are likely looking past the near-term impact toward the benefits of better disclosure by chastened insurance executives," Steve Dryer, S&Ps managing director said in a press release.

In other news this week:

· On Monday, the National Association of Insurance Commissioners Brokers Activities Task Force "ratified its decision to uphold the Compensation Disclosure Amendment as adopted in December," which requires agents and brokers to disclose compensation sources to clients, according to an NAIC press release.

· Also Monday, the Wall Street Journal reported that General Reinsurance is in the "early stages of talks" with the U.S. government to settle a criminal probe into certain of its dealings with American International Group, Inc.

· On June 10, Marsh & McLennan Company announced that it had completed a strategic review of its principal businesses and has no plans to sell or spin off any of those businesses.

Jennifer Sikorski ( jennifer.sikorski@iiaba.net) is IA’s associate editor.

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O N   T H E   H I L L
AIA Taps Former Governor, RNC Chair as CEO

The American Insurance Association (AIA) selected Marc Racicot as its CEO this week, and the Big "I" responded to the announcement with enthusiasm.

Racicot, who served as governor of Montana from 1993 to 2001 and chairman of the Republican National Committee from 2002 to 2004, will take the reins from Robert Vagley, who is retiring.

"Governor Racicot is an excellent choice," says Big "I" CEO Robert A. Rusbuldt. "As a two-term governor and chairman of the Republican National Committee, his leadership credentials are extensive and beyond question. He proved his mettle by being reelected governor and by heading his party through a hard-fought election cycle; the results speak for themselves. We look forward to working with Governor Racicot and AIA on many issues of mutual concern, and we believe his hiring is a very positive development for our entire industry."

"As a long time resident of Montana, I can attest to the tremendous credibility, integrity and leadership capabilities of Governor Racicot," says Tom Grau, Big "I" president and resident of Great Falls, Mont.

The Big "I" has worked very closely with AIA on a number of issues during the tenure of retiring CEO Vagley.

"Bob Vagley has been an excellent leader for AIA and our industry—a true friend and ally for independent insurance agents and brokers and the Big "I"—and we will miss him," Rusbuldt says. "He was totally committed to our industry and has always worked closely and forthrightly with the Big ‘I’ and all independent agents and brokers. We wish him all the best in his future endeavors."

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations. 

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O N   T H E   H I L L
Big “I” Takes On Pro-OFC Lobby

The Big "I" responded rapidly this week to a letter from several financial services companies to the Senate Banking Committee in support of optional federal charter (OFC) for insurance regulation.

Within minutes of the announcement, the Big "I" released a statement to the press stating forthrightly that a proposal to establish an optional federal charter (OFC) for insurance regulation is not the best or right solution for industry regulatory reform. The association strongly took issue with the letter.

"While the letter leaves the impression that many insurance companies support federal regulation, it has been our experience that the vast majority of insurance companies, and an overwhelming number of agents and brokers, oppose an optional federal charter for the insurance marketplace," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations.

Although the proponents of OFC say it would not supplant state regulation, the Big "I" believes the shift would be inevitable, to the detriment of consumers and producers.

"Some in the industry attempt to argue that an optional federal charter preserves states’ rights and would leave the state system intact," Symington says. "But there are huge problems with OFCs and federal regulation. For example, the latest industry OFC proposal would force the state system to backstop federal chartered insurers—this is an unprecedented intrusion on state solvency regulation and potentially a huge detriment to consumers. There is nothing optional about that.

"Supporters of OFCs also argue that an optional federal charter would preserve state premium taxes and that such revenue would continue to flow into state treasuries as they do now. If the federal government begins regulating the insurance industry, it won’t take long for this revenue stream to be diverted," Symington adds. "In addition, the Big ‘I’ believes there would likely be many new conditions accompanying federal regulation, including the possibility of community reinvestment act type requirements, anti-redlining provisions, Federal Trade Commission oversight, rate regulation at the federal level, and much more."

The Big "I" agrees there is no question that reform is needed in order to address many of the concerns listed in the letter, including "inconsistent and inefficient regulation" and others cited, but also believes that agents and brokers and the consumers they work with are better served by reforming the current system. This is why the Big "I" supports the proposed State Modernization and Regulatory Transparency (SMART) Act legislation that is expected to be introduced in the House this summer.

"We support the SMART Act for several reasons, including the fact that it would foster consistency among the individual states without creating a new, cumbersome federal bureaucracy or unduly burdening agents and brokers nationwide with onerous or dual regulations," Big "I" CEO Robert A. Rusbuldt says. "When it comes to insurance regulation, consumers and insurance producers have many issues on the table. For example, agents who inevitably would represent both federally regulated and state-regulated companies would still have to be licensed in the states, in addition to also having to add a new federal license and education requirements. This just adds another layer of federal licensing and regulation. Consumers would have to know and understand which regulator their companies had for all of their coverages: their homeowners, auto, life, umbrella, business insurance and other coverages —consumers would be calling their state insurance department or a bureaucrat in Washington for different coverages. Congress doesn’t need to create a Bosnia-type situation for the consumer."

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations. 

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  V I E W :   A G E N C Y   M A N A G E M E N T
More Than Just Beach Reading

It’s the time of year when peoples’ thoughts turn to timeless summertime activities, such as going to the beach, camping, hiking and golfing. For adults, the dog-days of summer harkens back to a time before e-mails, voicemails and Blackberries, where afternoons were looking for a four-leaf clover or playing with heavy-duty toy trucks in the sandbox.

So why am I going to burst such pleasant memories by suggesting that summer is also the perfect time to catch up on professional reading? For many adults, summer is the least hectic time of year as far as outside commitments, freeing up time to devote to reading.

Self-development guru Brian Tracy preaches that everyone should devote one hour a day to professional-related reading. For insurance agents, this includes technical insurance-related information, agency automation, sales development or other topics.

Or, it may be a good time to take an online CE class through the Big "I" Virtual University or to peruse VU’s insurance library of topics. For a tech brush up, click on the Agents Council for Technology homepage and bring yourself up to speed on the evolutionary and innovative developments that can make your agency more efficient.

For those of you who don’t want to get sand on your keyboard, you can always take along the latest copy of IA Magazine and read it cover to cover. It’s a status symbol for sure and a way to feel vastly superior to those people reading about J.Lo’s latest marriage and/or breakup in one of those supermarket tabloids.

If you are trying to forget about the office, you can still find a motivational book to rekindle your commitment to excellence back in the office. On my personal reading list this summer is John Wooden’s latest book, which utilizes the lessons he learned as the greatest coach in athletic history as tools for effective leadership.

Whatever your self-improvement objectives, don’t let the opportunity to do some quality reading slip away. And just in case you get behind on reading e-mails while away on vacation, I have great news for you. IAmagazine.com archives each issue of the weekly Insurance News & Views so that you go back and review the issues that you missed.

Remember, it’s your continuing effort to stay on the cutting edge that sets you apart from the competition. Don’t forget to pass along any quality stuff that you enjoyed to your office colleagues. It will confirm what they think of you.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and life-health contributing editor for IA magazine.

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