Annuity Producers: ‘We’re Optimistic … Sort Of’

As the economy continues to make slow but steady progress, consumers are trying to recover their losses from the financial meltdown. Insurance producers have seen a commensurate increase in annuity sales, and coupled with regulatory reform, rising interest rates, and the tip of the baby boomer iceberg, this has led to an optimistic tone in the annuity market.

To gauge this tone, the sixth annual Annuity Market Study, conducted in January 2011 by Agent Media Data in partnership with the National Association for Fixed Annuities, explores producers’ experiences in the annuity market over the past 12 months, along with the trends and performance that agents anticipate in the coming year. And starting on page 26, we reveal the results of the 2011 Annuity Carrier Report Card. What’s next for your business? Read on…

 Strong sales expected ahead

 Considering the still-recovering economy, producers reported relatively strong annuity sales in 2010. Producers whose sales remained the same as last year took the largest share among respondents at 39 percent, with producers who reported an increase in sales coming in at a close second at 36 percent. Predictions for the coming year closely mirror the optimistic level of 2010 — 67 percent of agents expect sales to increase, while 30 percent think sales will remain the same.

NAFA executive director Kim O’Brien thinks that dodging the regulatory bullet of 151A in mid-2010 helped keep sales moving. The change in the political climate as a result of the November election, however, leaves the industry wondering how things will play out.

“There’s still a bit of nervousness, and we’re watching it, but clearly the victory over 151A helped agents who had been in this market remain in the market, and also helped a number of broker-dealers who were sitting on the sidelines waiting for a definitive conclusion to the debate,” said O’Brien.

According to Cathy Weatherford, president and CEO of the Insured Retirement Institute, the market’s performance and producers’ continued optimism may also be tied to the influx of baby boomers interested in annuities. The biggest issue on the boomer’s mind is, “How will I live within a fixed income when I get to retirement?” — and annuities can be part of the solution, Weatherford said.

Jay Drucker, vice president of annuities at American General Life Companies, was impressed with the level of optimism in spite of low interest rates.

“From spring to the fall, we saw a precipitous drop in interest rates, which really created a negative impact on fixed sales,” Drucker said. “I’m pleased to see that agents’ attitudes still remain positive even having gone through that six-month period where interest rates were at record lows.”

Riders, today and tomorrow

 While guaranteed lifetime withdrawal benefits and income riders are expected to dominate in 2011, Laura Hahn, managing director of annuities at The Marketing Alliance, feels that long term care riders aren’t getting the attention they deserve — possibly because they’re still relatively new to the marketplace.
Paul Irving, annuity marketing manager at the Annuity Department, agreed that long term care riders represent a strong selling option for agents.

“I see a massive opportunity with Pension Protection Act-approved linked benefit products,” Irving said. “There’s a bunch of money right there that’s just stagnant, and it’s a way to help someone who has otherwise failed to do some long term care planning.”

Weatherford feels that clients haven’t discovered the true cost of health and long term care in retirement, but expects that once agents take the opportunity to help them understand how they can use insurance to protect them from those costs, long term care riders will become more popular.

  “It is a tremendous asset protection product,” Weatherford said. “It protects people’s assets against the ravages of the cost of health care, home care, and long term care. And that’s where it’ll have success in placement in retirement portfolios.”

 Challenges with a twist

 Clients who don’t understand annuities and clients’ reluctance to tie up their money in the annuity market finished in a dead heat for first place (43 percent each) when producers ranked their biggest challenges in selling annuities. Those factors may play new roles as clients begin to shift their thinking in 2011.
For clients who no longer have time to recover from market-driven portfolio drops, asset accumulation is quickly giving way to preservation, said O’Brien, and those consumers will begin to appreciate the advantages and simplicity that an annuity can offer.

 “We spent decades talking about how to help these people accumulate wealth and accumulate savings,” Weatherford said. “Now, we have to change the conversation with these baby boomers to how we can now help them figure out how to have a safe, soft landing in retirement with the money they saved.”

Client skepticism due to ongoing negative media coverage continues to hamper agents’ selling efforts, with 37 percent of respondents listing it as a challenge. Irving said that overcoming those preconceived notions can take an enormous amount of energy.

“There’s no positive awareness about annuities, and there’s a huge amount of negative awareness about annuities. … It creates a lot of negativity in the client’s mind before the conversation even starts,” Irving said.

 Where do we go from here?

 After surviving the recent financial crisis, few are willing to make definitive statements about where they think the market is heading, said Hahn. While agents typically tend to err on the positive side, only time will tell.

“Everything we hear is we should be optimistic, but that it will be slow,” Hahn said. “It will not be something that immediately happens. It will be somewhere down the road in 2011 — we’ll all wake up and say, ‘Hey, we’re kind of back.’”

 Carriers are also employing a more cautious and thoughtful approach, Drucker said.

“I’m not sure I have the answer as to where the future is going to be, but I know we’re aggressively going through that process of determining where it is and what it is, so we can be proactive rather than reactive,” he said.

 One potential cause for long-term concern is the agent demographic, said O’Brien. With 30 percent of producers reporting that they have 21 years of experience or more, that means that one-third of annuity producers could be leaving the market over the next 10 to 20 years.

  “There was a time, maybe six or seven years ago, where children of the agents were coming into the business,” she said. “We see less and less of that now.”

 No matter how new professionals enter the industry, however, the annuity market’s health will depend upon a force of experienced and knowledgeable producers — experienced in how to overcome challenges, respond to client objections, and successfully navigate the industry on their way to success. 

 

Julie Knudson is a freelance business writer based in Seattle.

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