Article on Implications of 10/10 Rules in Indexed Annuities
In an [article] published today on Insurancenewsnet.com, Sheryl Moore, President and CEO of AnnuitySpecs.com discusses the so-called 10/10 Rule and its implications on product design, performance and consumer protection.
Moore notes that the 10/10 rule, dubbed this due to its maximum 10 year surrender charge period and 10 percent surrender charge penalty, was designed to protect consumers. She notes that "the rule seeks to avoid having 85-year old grandmothers on a fixed income being swindled into a product where she will not receive her full cash value for 11 years or more."
Her conclusion is however, that this intent has the result of limiting the availability of products that would be suitable and desirable choice for some. The article presents one of the constant struggles with product regulation: when is consumer protection more accurately paternalism? That line is seldom clear and often reasonable minds will differ on where it should lie.
Moore sees companies left with little choice than to design products that are "10/10-friendly" and that means, she states, a "slew of 10-year products with 5 percent premium bonuses that pay 8 percent commission."
Encouraging readers to contact their state insurance departments to protest the paternalistic limits in product choices, she concludes: "Limiting surrender charges on annuities because of bad agent behavior is like outlawing hammers because some murderers use them to bash their victim's brains in. When used properly, indexed annuities of all durations are a valuable insurance product." Moore states that even a 16 year surrender charge would be appropriate for her because she does not need income now.
Obviously one issue is that we don't always anticipate the need for funds. Many who are unemployed today may not have expected it a few short weeks or months ago and a surrender charge could seem pretty significant when faced with the present need for cash. But is there a difference between a 10 year and a 16 year surrender charge in that case? Where is the line between reasonable and unreasonable? And who do we want making that decision? The individual or the regulator?
It will be interesting to see how much, if any, of this type of product feature regulation survives as we move toward federal regulation of insurance. But if we modify slightly her analogy to hammers, Moore suggests gun control or cigarette/alcohol restrictions may be an appropriate place to look at the difficulties that arise when we, as a society, try to decide where an individual's right to make choices that may cause harm ends and when it is appropriate for government to step in to protect us from ourselves and others who may try and manipulate our actions.
