Iowa Bulletin 14-02
To: All Insurance Companies Writing Life and Annuities in the State of Iowa
September 15, 2014
Commissioner Gerhart issued guidance to insurers promoting the sale of fixed index annuities in the state of Iowa. The bulletin focuses on three areas of advertising compliance concern.
1. Lifetime Withdrawal Benefits: Some ads claim an annuity benefit provides an annual rate of return, e.g. “client earns 8%.” Such a statement may lead the consumer to expect to earn that specific interest rate.
As many of our clients know, we recommend that advertisements:
a. Avoid words that could imply a consumer is “earning” or “making a return” and avoid the term “interest rate,” unless the product feature is described clearly.
b. Do not promote a specific percentage, as we consider this promissory; if a specific percentage is mentioned we recommend adding “up to” before the percentage.
c. Use a realistic or typical value, so the ad is not misleading and does not advertise a specific product, which would require insurer review.
d. Include a disclosure which clearly explains how this value is determined.
2. Uncapped Rates of Return: The bulletin cautions against using an “uncapped rate of return” when you do not fully explain all components which could limit or restrict the return, as the consumer may develop an inflated expectation that cannot be attained. By balancing the ad with explanations (in text or through disclosures) of the limitations of spreads, participation rates or other controls, an ad can help consumers understand how the limitations work and give a more realistic picture of what future projected interest credits may be. Please keep in mind standard regulatory directives say that a false statement cannot be remedied by disclosures or disclaimers.
3. Back-casting: The bulletin also urges careful thought before demonstrating the theoretical gains of a fixed index annuity by showing it linked to an index during a period of time the market experienced great growth, when that annuity did not exist during that period. The bulletin’s guidance also pushes back at a trend of using “proprietary” or “exotic” indices to show gains which outperform traditional indices without fully disclosing the limitations and potential negatives of these indices. Consumers may get a misleading picture implying they will receive higher returns.
“State Warns About Misleading Insurance Ads” An article in the Des Moines Register dated 9/18/2014, quotes Doug Ommen, Iowa’s Deputy Insurance Commissioner as saying, “If it's not properly explained, you're going to create an expectation that will not be met." The article further explains that the issues called out in the bulletin “often increase consumer expectations for higher payouts and misunderstandings of how future rates of return are calculated.” Ommen continued that the division is monitoring the state's insurance market and that fines for violations typically start at $1,000 but could rise to $5,000 per violation. Link to article here.
Please contact us if you have any questions.
C. J. Rathbun, FLMI, CCEP, HIA, AIRC
Senior Consultant
816.391.2740
CJ.Rathbun@FirstConsulting.com
