Houston Chronicle, June 4th, 2007
The most heavily marketed insurance product, the equity index
annuity, is becoming the most litigated insurance product. Attorneys
general in several states have filed suits against a number of vendors.
In addition, there are now four class-action suits against Allianz
Life, the most successful marketer of equity index annuities.
The primary complaint in these suits is that the annuities are
inappropriate investments for older people and that the buyers were not
made aware of the onerous penalties if money was withdrawn earlier than
the term of the contract.
In spite of this, the sales force is still out there, inviting
seniors to free seminars and free dinners to praise the glory of their
ultra-safe product. The National Association for Fixed Annuities
continues to lobby to keep equity index annuities from being considered
securities because it doesn’t want its marketing and sales to be
subject to SEC scrutiny.
Readers continue to ask me, “This equity index annuity sounds too good to be true. Is it?”
The nutshell answer: Yes, the equity index annuity story is too good to be true.
Mass Mutual analysis
Responding to my recent column
(“Equity Index Annuities: Long on Sizzle, Short on Steak”), the sales
force pulled no punches. They complained that the study I cited had
been done by economists who provide litigation support. Therefore, they
said, it was biased.
If I was a good reporter, they wrote, I would not have used such clearly tainted figures.
OK, then. I was just trying to keep things short and sweet. Here, at
the specific request of members of the equity index annuity sales
force, is some further data indicating that this product doesn’t cut it.
Let’s start with research from one of the largest and most respected
life insurance companies, Massachusetts Mutual. Several years ago it
sent an analysis to its sales force. It wanted to explain why Mass
Mutual wasn’t offering an EIA.
The analysis showed that over the 30-year period ending in December
2003, and assuming no dividends and a 9.4 percent annual cap on returns
(because EIA contracts generally have some form of upside limit), Mass
Mutual found that a typical equity index annuity would have provided a
return of only 5.8 percent a year.
