The life insurance industry has been raising a ruckus over an SEC ruling they say will seriously damage business for some life insurance agents – and this month, that noise is starting to pay off.

House and Senate lawmakers filed federal bills to effectively reverse a January Securities and Exchange Commission decision that changed the definition of indexed annuities, after months of lobbying and fundraising efforts by industry groups such as the National Association for Fixed Annuities.

By classifying indexed annuities as securities, the SEC will require agents who currently sell the products to get securities licenses and do their business through broker-dealers – both of which will cost agents substantial fees, and, some advocates say, put many out of business.

The SEC has claimed it is protecting consumers: Critics of indexed annuities say life insurance agents often explain the products poorly and expose consumers to risks they don’t fully understand. At worst, agents have been accused of preying on the gullibility of consumers – especially senior citizens – to sell products that are riskier than they let on.

Overblown Fears?

Indexed annuities are vehicles that guarantee a fixed rate and allow the holder to earn additional interest based on the performance of a major index, such as the S&P 500.

Indexed annuities defenders claim that fears of consumer danger are overblown – many say indexed annuities are simply a variation on typically low-risk fixed annuities, and that the SEC used a few scattered anecdotes to build its case against the products.

The National Association for Fixed Annuities’ official report to the SEC argues that in reaching its decision, the commission “cites no data … [and] specifies no information about consumer complaints or enforcement actions” that justify the change.

The industry also claims the rule change is murderous on insurance agents’ businesses, some of whom make a large chunk of their living out of annuities sales.

Insurers with a heavy Massachusetts presence, such as MassMutual and Canada-based SunLife Financial, are not major players in indexed annuities: the leaders in the field are Lincoln Financial, Allianz and Aviva. Agents who sell such products, however, operate throughout the country.

High Cost

Getting the securities license is no minor proposition, said opposition leader Kim O’Brien, who is executive director of NAFA, the association that helped push forward the legislation opposing the directive.

O’Brien says maintaining such a license costs between $2,000 and $5,000. Only about half of the 90,000 agents selling index annuities have such a license, and the rest may find it impossible to maintain that added requirement.

For those people – many of whom have spent the better part of their careers almost exclusively on indexed annuities – the rule changeover will be an enormous financial hardship.

The licensing doesn’t include any added educational component or testing for indexed annuities whatsoever, she said, but “it helps the SEC and FINRA gets more fees, which is obviously part of the motivation.”

Many in life insurance marketing associations, such as Albert Gray of Underwriters Marketing Services, echo that claim, saying Wall Street is just upset that investment dollars are leaking into the life insurance industry.

“I think it’s maybe a bit of a power grab” by broker dealers, he said.

NAFA predicts many life insurance agents would be forced out of work: Jack Marrion, who has written on the subject for Senior Market Advisor Magazine, is more optimistic that agents will be able to make up the lost business, but said the change would be a blow.

Still, he and Gray say they’re confident the industry will win this fight. In addition to the new legislation circulating in Washington, D.C., another group called the Coalition for Indexed Products is suing the SEC to accomplish the same goals.

Marrion doesn’t set much score by the congressional route – Congress has a lot on its plate these days – but has faith the judicial route will be successful.

“I try never to predict anything, but I predicted … the court will overturn it. The [SEC ruling] seems to be based more on the emotional ruling, rather than case law,” he said.