We know the value a fixed annuity product can add to a well-rounded retirement portfolio. Annuities are gaining national attention and acceptance as a source of reliable, guaranteed income in a time of market uncertainty. More and more consumers are looking to fixed annuities for the level of protection they add to a retirement income strategy.
Insurance carriers and distributors play a critical role in helping consumers understand annuities and how they can help support a solid financial plan. Consumers need accurate, complete and honest information about annuities and how they work. Advertising is an important and powerful way to explain the features and benefits they offer – if it’s done right.
Advertising that isn’t done right, that doesn’t meet strong advertising and regulatory standards, can be dangerous. Not just to consumers who may make poor decisions based on misrepresentations and to insurance agents who may make unsuitable sales due to poor advertising. It also impacts carriers who are increasingly being held responsible by state insurance departments for inappropriate, misleading and non-compliant advertising used in the solicitation of their products – even if the advertising doesn’t mention the carrier or its products.
So what are the regulators’ expectations for carriers? The regulatory landscape for annuity sales is shifting, as state insurance departments become more vocal about the need to protect consumers and ensure annuity advertising is fair, complete and compliant. Recent bulletins from the Kansas (2012-1, 2014-1) and Iowa (14-02) insurance divisions have been direct and clear – carriers are responsible for advertising that results in the solicitation of their products, whether or not the carrier is mentioned in the ad. This “generic” advertising, historically not considered in-scope for many carriers, is becoming a greater risk and needs to be addressed.
Annuity producers and marketing organizations develop a significant amount of advertising, much of which is carrier-agnostic. These materials, which include newspaper, radio and TV, internet, email, lead generation cards or seminars, are used to get consumers’ attention and interest, and often carrier materials are then utilized only at the point of sale.
Historically, most insurance carriers required their sales force to have advertising approved by the carrier only if it mentioned the carrier or its products by name. Some carriers’ advertising policies have gone beyond this and require that any advertising resulting in the sale of one of their products should also be submitted for carrier approval. However, enforcement of this position has been very difficult – and costly – for carriers to administer. And yet, having a policy that requires generic advertising to be submitted for approval but not following or enforcing it is an added regulatory risk itself.
So, how can carriers address and manage their risk? Pretending it doesn’t exist is no longer an option. The bar has been raised, the risk is real – it’s a question of how to manage it without significant disruption to the business.
The good news – gaining greater transparency into your distribution’s advertising has benefits, too. Having a process in place to review advertising used by annuity distributors provides carriers with insight into sales practice issues they may otherwise not be aware of. This also provides an opportunity to reduce these risks. Some red flags that an advertising review process can highlight include: targeted senior marketing, bait & switch marketing, producer registration issues, product misrepresentation, and unsuitable replacements, among others. Be assured, if carriers can spot poor sales practices in advertising, regulators can too. Carriers who are proactive in identifying and managing these risks are better positioned to respond to regulatory inquiries and questions about their distribution’s advertising, if they have taken reasonable steps to mitigate their risks.
There are numerous approaches to addressing this issue, and they vary in scope, resource needs, and residual risk levels. For example, a carrier may decide to require all advertising – generic included – come in-house for pre-approval. While this option can be costly, it is a complete and conservative approach. Another option may involve advertising sampling and post-reviews, providing feedback and education to the distributor. Focusing on key producers or distribution channels based on volume or risk profiles may also be useful in mitigating higher risk advertising.
Some carriers may be hesitant to bring this function in-house due to resource or staffing needs, or for fear that producers and marketing organizations will resist specific carrier feedback and standards. In these instances, outsourcing this function to an objective third party, such as a compliance consultant or consulting firm, may be a more acceptable approach. Whatever approach is used, carriers should develop a method to evaluate and manage the risks identified, as well as provide on-going training and communication to distributors. Communicating carrier standards clearly and consistently will further reduce carrier risk, and will result in better advertising and sales practices over time.
And by self-regulating advertising, the industry just may stave off unnecessary regulation, and we all benefit.