Over the last two years the number of closed customer complaints reported by the National Association of Insurance Commissioners (NAIC) concerning annuities has nearly doubled, increasing from 342 complaints in 2013 to 603 in 2014 to 656 in 2015. Although overall fixed and variable sales have modestly increased from around $230 billion in 2013 to $236 billion in 2015 (based on looking at the various sales reporting services), it still shows that there was one complaint for every $672 million of sales in 2013 and one closed complaint for every $361 million in 2015 – and the smaller the number, the greater the number of complaints by comparison.
The NAIC gathers closed details of customer complaints from the state insurance departments and tallies them. These are the numbers of annual complaints coded “annuity” or “group annuity” and would include both fixed and variable. The totals should not be viewed as 100 percent accurate because some complaints are miscoded, but the numbers do provide evidence that complaints are up.
Why are complaints higher? It’s unclear to me. Nothing exceptionally or particularly bad in the annuity world has occurred since 2012. It’s true that guaranteed lifetime withdrawal benefit income roll-up (increasing benefit) rates have declined on both variable and fixed index annuities, but in-force annuities were not affected. Markets have not crashed, which could have caused bad feelings, nor have interest rates spiked, which could have caused existing owners to question significantly lower renewal rates when compared to new money rates on fixed annuities. It’s true there are new indices in the fixed index annuity space, but they haven’t been around long enough to potentially give a consumer anything to complain about. In short, I can’t find a performance or product related reason for the increase in complaints.
Some of the complaints are a little strange. In past years there has been a pattern of some carriers having consistently higher complaints than others – relative to premium received – but last year some carriers that had histories of zero or near zero complaints were hit with multiple complaints. In addition, some of the new complaints are directed at carriers that haven’t marketed annuities in years.
Having 656 annuity complaints is not a good thing, but it helps if you keep things in perspective. Last year FINRA reported 3,250 complaints against its members, the top ten complaints alone to the SEC totaled 4,686 and bank complaints were over 25,000 – not including complaints against mortgage lenders and credit card issuers. Finally, there were over 82,000 complaints against property and casualty insurers and let’s not even get started on complaints in the health insurance arena. All of these totals are available on the applicable regulator’s website.
It’s also good to note that of the over 2 million consumers that bought an annuity last year, or the several million that purchased over the last several years, that 99.98 percent did not feel the need to complain. In fact, when one looks at the volume of investment and annuity goods and services and compares that with the number of advisors, registered representatives and agents out there, you find that well over 99 percent of consumers never feel the need to file a complaint against an investment or annuity professional.*
None of this minimizes the reality that annuity complaints have gone up. However, if bad agents are causing the problem, insurance departments are working to get rid of them – in over a hundred cases last year agents were referred for disciplinary action. Hopefully, the no-consumer-complaint percentage will go up to 99.99 percent in 2016.
Footnote:
If you include annuity complaints from FINRA and the SEC you still get the 99.98 percent no complaint percentage. The complaint percentage for representatives and advisors is based on total volume and number involved.
