Changes Coming To NAIC Annuity Buyer’s Guide

February 13, 2013


By Linda Koco

An updated buyer’s guide for deferred annuities appears to be close to completion. Is this a case of someone reinventing the wheel, or does the re-do have merit?

Iowa’s First Deputy Commissioner Jim Mumford contends the new document will be a lot easier to read than the one currently in use which was last updated over a decade ago. “The language is more tuned to the consumer,” he says, “and it’s a lot shorter than the current version. We wanted to make sure of that, so people will actually read it.”

Mumford chairs a National Association of Insurance Commissioners (NAIC) working group that has been working on the revisions along with several industry groups and some consumer representatives.  In recent weeks, the group has been reviewing final language before sending the document on through NAIC channels for formal adoption.

The revised NAIC Buyer’s Guide for Deferred Annuities is definitely aimed at consumers, but it may prove of value to advisors, too.


For instance, if the final version of the revised guide really is simpler, shorter and more consumer-friendly than the previous version, that might come in handy when advisors are introducing annuity concepts to customers. (The word “if” appears here only because the final version is not yet approved.)

Advisors who take an educational and consultative approach to their practice typically like to refer their customers to easy-to-read resources from authoritative bodies. They use the materials to reinforce points and serve as refreshers.

Also, the question list near the end of the revised document could make a difference. These are questions that consumers might want to discuss with their annuity salesperson. But advisors can use the questions, too—as a reminder of points to cover with the customer, and as a heads-up on topics that customers might bring up, particularly customers who have read the guide.

In addition, the revised guide is one with which advisors will need to be familiar. That is because of a provision in the amended Annuity Disclosure Model Regulation that NAIC adopted just over a year ago.  

The amended model requires that, when annuity applications are taken in face-

to-face meetings, the NAIC approved Annuity Buyer’s Guide must be delivered along with an annuity disclosure document. Delivery must occur at or before time of application.

Iowa has already adopted this model, and several states are expected to do likewise this year. In addition, a number of states are using an earlier version of the disclosure model that has a similar delivery requirement. (In all, nearly 20 states have some form or a disclosure regulation.)

So, advisors who work in states that have such regulations will likely find themselves sliding the new buyer’s guide, once available, across the table to customers. They will need to know what’s in it.

This could entail a lot of transactions because, with a few exceptions, the model applies to all group and individual annuity contracts and certificates.

Advisor interests

The revised guide reflects the combined work of many hands, including some who are keenly aware of advisor-related concerns regarding consumer education and disclosure.

State regulators--via the Annuity Disclosure (A) Working Group of NAIC’s Life Insurance and Annuities (A) Committeeare the ones who have been shepherding the buyer’s guide project. But several industry groups have participated too, among them the National Association of Insurance and Financial Advisors (NAIFA), NAFA (the National Association for Fixed Annuities), the Insured Retirement Institute (IRI) and the American Council of Life Insurers (ACLI). During the commenting process, the American Academy of Actuaries and some insurers weighed in as well.  

Two “funded” consumer representatives—Brenda Cude (University of Georgia) and Karrol Kitt (University of Texas)—were also on the team. Their role was to help keep consumer comprehension issues on the front burner. Hence, the new version focuses on deferred annuity essentials, not minutia, says Mumford. The pages include callout boxes and bullet points lists, to highlight certain ideas and support readability.

Advisors will be relieved to learn that the proposed guide does include technical annuity terms and concepts. However, it does so in short sentences and active voice—writing techniques that have been found to enhance comprehension.

For example, in describing the two phases of an annuity, the most recent draft says: “All deferred annuities have an accumulation period and a payout period. During the accumulation period, your annuity earns money based on the type of annuity. During the payout period, the annuity makes income payments to you.” (The wording may change in ensuing days, but this example shows the style.)

The material discusses only deferred annuities, but covers all three types--traditional, indexed and variable. “Under the disclosure model, the NAIC Buyer’s Guide must be provided with applications for all three types of annuities,” Mumford explains.

Revision history

This will be the first revision to the guide in over a decade. The last revision came out in the late 1990s when indexed annuities were still quite new and when regulators were getting a lot of questions about those products. That’s when regulators added indexed annuities to the material.

Work began on a newest version about four or five years ago. That’s when national attention began to intensify on having clarity, simplicity, transparency and disclosure in various financial and insurance products. This demand is one of the many consequences of the financial issues raised by the recession of 2007-2009, spreading well beyond sophisticated instruments for business clients and on into retail.

In the old days, the entire buyer’s guide document was woven into the appendix of NAIC’s previous disclosure model. That made updating difficult, Mumford says, because regulators had to open up the entire model in order to update the guide. Now, under the amended Disclosure Model, the NAIC Buyer’s Guide for Deferred Annuities is a stand-alone document; this will permit more timely updates, he says.

When will the newest version get the official go-ahead?  The NAIC working group will hold a conference call about it on Friday, Feb. 15. If everyone agrees on the language, it will head on to the NAIC (A) Committee for approval, then to the NAIC Executive and Plenary for approval, and finally to the states for adoption.

Mumford thinks NAIC approval will happen this year.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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