Insurers prepare agents for rep status, albeit reluctantly

The nation's leading indexed-annuity seller, Allianz Life Insurance Company of North America, is leading the charge to prepare agents for the switch, providing them with intensive training for securities-licensing exams. Aviva USA, another major indexed-annuity provider, is also gearing up for the change but has been tight-lipped about specific agent programs. Industry observers said that other firms are quietly preparing agents but are unwilling to discuss their actions for fear of giving the im-pression they have thrown in the lobbying towel.

SEC RULE AT ISSUE

At issue is the Securities and Exchange Commission's proposed Rule 151A, which would place indexed annuities under SEC jurisdiction and treat them as securities. Last week, the SEC extended its deadline for implementing the rule to January 2013, from January 2011. The U.S. Court of Appeals for the District of Columbia Circuit, which is hearing a case brought by the American Equity Investment Life Insurance Co. and others against the SEC regarding the rule, has ordered the commission to reconsider the rule's effect on capital formation and efficiency. Although Allianz and Aviva don't concede that indexed annuities are securities, they are preparing for the possibility that the contracts may be deemed as such. “We have a lot at stake if we're not prepared for the future,” said Tom Burns, chief distribution officer at Allianz Life. More than 700 Allianz agents have signed up for training webinars and workshops this year, with demand picking up recently. Allianz said it is developing an intensive training “boot camp” and will hold a pilot session by midyear. About two-thirds of Allianz's business comes from indexed annuities, and half the agents who sell them already have securities licenses. “If this is your livelihood, why wouldn't you want to be prepared in case this rule goes through?” Mr. Burns said. “We're not saying we want Rule 151A to go through, but we want our agents to be prepared.” Other insurers are waiting for the outcome of the court case and are preparing contingency plans, including helping agents find a broker-dealer and lining up Series 6 and Series 63 license study materials. Large insurers likely will have an easier time helping independent agents make it through the licensing process because, in many cases, the companies already own a broker-dealer or a field-marketing organization, which acts as a distributor of insurance products. Field-marketing organizations often own a small broker-dealer, thus providing a home for agents once they become registered reps. Given the emphasis on sales, the compliance culture at broker-dealers owned by marketing organizations usually is not as strong as that at a major broker-dealer, noted Amy Lynch, president of FrontLine Compliance LLC. “They have a different mind-set, and the insurance industry is extremely competitive,” Ms. Lynch said. “The compliance side is something they don't think about from the beginning. They have this well-oiled marketing machine that needs to change in order to comply with new regulations.” Some agents who become registered reps will sell investment products other than indexed annuities, particularly variable annuities and other insurance-related products, Mr. Burns said. He estimated that 38% to 40% of gross dealer concession at Questar Capital Corp., Allianz's broker-dealer, came from indexed and variable annuities and insurance products, while the remainder came from mutual funds and other investments. Anecdotally, agents reported that their marketing organizations are already gearing up for the possible passage of Rule 151A. “[Preparing for the test] gives carriers more agents with more capability of selling the product,” said Russell A. Smith, owner of Torimax Financial Group Inc. and a trustee of the National Association of Insurance and Financial Advisors. The marketing company with which he works is setting up a broker-dealer and probably will train agents, he said.

ADDING SPICE

Carriers are also preparing for the possibility that some of their agents won't want to become registered reps. For those agents, the companies plan to spice up their traditional fixed-rate annuities by adding extra riders. “There are a few fixed-rate products with a guaranteed lifetime withdrawal benefit, and I see companies looking at that more and sprucing them up to please and impress the distribution force,” said Noel Abkemeier, principal and consulting actuary at Milliman Inc. Regardless of where an insurance carrier stands on whether indexed annuities should be regulated as securities, agents themselves are being practical. “The smarter companies are taking a more moderate view and preparing either way,” said Mr. Smith. “An all-or-nothing stance from the larger companies doesn't make sense. If the rule passes, you're going to favor a company that's already prepared.”