Got milk? Got annuities?

By Kim O'Brien

The Annuity Advocate

To fully understand the impact of Rule 151A on consumers, it may be easier to analogize annuities to a common product you find in your grocery store. So we picked milk. Let's begin with a little history.

According to the International Dairy Foods Association, the first dairy cows were brought to Jamestown, Virginia in 1611. Today's dairy industry includes the farmers who produce the milk; the intermediaries who provide all the services needed to bring a variety of wholesome, refreshing dairy foods to the marketplace; and the retailers, who sell these products directly to consumers. In addition, you have the Association itself, which promotes the awareness and understanding of milk's nutritional and dietary benefits.

Important Dates
in Milk History

Provided by the International
Dairy Foods Association
Important Dates
in Annuity History

Provided by the
Committee of Annuity Insurers
1624The first cows arrive at Plymouth Colony1759A corporation for "poor and distressed ministers" provides first survivorship
annuities for the families of ministers.
1895 Commercial manufacturer of pasteurizing machines introduced to provide the general public with safety and nutritional guarantees 1812Commercial manufacturer of annuities founded to provide the general public with principal protection and income guarantees
Mid-1900sNon-dairy milk substitute was introduced in several markets. Proponents advocating the benefits of their product when exposed to hot temperatures (without the need for refrigeration) with consumers accepting the risk of possible loss of nutritional benefits.1952The first variable annuity was created, crediting interest based on the performance of the market with consumers accepting the risk of possible loss in values and decreasing benefits as a result of market declines
Mid-1900sLow-fat milk is introduced as an alternative to whole milk to provide the guaranteed nutritional value of whole milk with potential increases in dietary benefits 1995The indexed annuity is introduced with guarantees of minimum interest and income, with potential for additional interest earnings to the performance of a market index
1988Lower fat dairy products gain widespread acceptance. Low-fat and skim milk sales combined exceed whole milk sales for the first time 2002Indexed annuity sales reach record high of $10.5 billion, doubling sales over a two-year period

The Association's Web site states that "because milk and milk products are now readily available and frequently consumed in the United States, a steady supply of these foods is often taken for granted. Thanks to the many advancements and improvements achieved by the entire industry in the areas of processing, packaging, refrigeration and distribution, a wide range of dairy products is now available to everyone."

Assume now that a United States Agency adopts a rule to change the status of all low-fat milk to a non-dairy product. The Agency appears to believe that despite the fact that all dairy products are regulated by the FDA, they must also be regulated by a second, additional entity that regulates non-dairy products, creating unnecessary and duplicative oversight. The result of the rule is that most of all low-fat milk will now be sold exclusively through vending machines. To the relief of predominantly whole milk distributors, whole milk is not included in the Rule at this time. Intermediaries, retailers and manufacturers who voice opposition and cite concerns with product availability, loss of business and increased cost to add vending machines are called "saber rattlers". Meanwhile, despite the economic crisis, the dairy industry must remove milk from grocery stores, convenience stores and gas stations and send all customers to the new Vending Arcade at the local mall.

Politicians and regulators may not see the parallels between the dairy industry and the annuity industry. But Rule 151A doesn't just add the duplicative and unnecessary burden of federal regulation on top of the already rigorous state regulation; it significantly alters the way annuities are developed, distributed and consumed, severely limiting consumer choice and their ability to purchase fixed annuities. NAFA believes that the trusted and reliable distribution of annuities through the time-tested channel of independent insurance agents (whether they are securities licensed or not) offers the appropriate balance of distributors' expertise and focus with product choice and availability. All consumers seeking the safety and reliability of low-fat milk, or annuities, for that matter should have a choice in what they buy, where they buy and from whom they buy. Got annuities? With Rule 151A, sadly the answer may be: "No, where do I get them? My local insurance agent can no longer sell them to me."

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