Innovation, competition key to new annuity universe
Advances in products and new entrants into the annuity space threaten to shake up the industry. And that’s not necessarily a bad thing.
If you have a roomful of annuity experts together, you’d think there’d be more debate and disagreement, but that’s not the case. Oct. 19-21 in Boca Raton, Fla., the 2011 NAFA IMO Summit, “Building on Success,” took place and you would have thought it was the pastor preaching to the choir there were so many amens spoken. The consensus was this: innovation of products and competition from non-traditional annuity players will have a bearing on the landscape, and that could be a good thing.
We spoke with event speakers Sheryl Moore, Eric Thomes and Allan Grissom to get their thoughts. In addition, just to make sure the Kool-Aid hadn’t been spiked, once we got back from the conference, we contacted additional annuity experts Dana Pederson and Jeremy Alexander.
Read highlights from our conversations with these five esteemed annuity gurus:
Sheryl Moore, President | Annuity Specs.com
On GLWBs: This is the most challenging environment we’ve seen for insurance agents because of fixed annuity rates averaging a little over two percent. But GLWBs (guaranteed lifetime withdrawal benefits) are an agent’s saving grace. It really gives agents an opportunity to talk to clients about guaranteed income and they can drive the point home by talking about how you can save Americans’ future with guaranteed income. Now, more than ever, agents need to look into these riders. And, the good news is, it’s happening. Currently, 60 percent of indexed products are elected with GLWBs on them.
An outlook for the annuity business: As I said earlier, this is a challenging time for agents to make annuities sales propositions. But, it’s also a great time to be in this business. We all know how tough it’s been with the economy since 2008. But it’s opened the door for consumers. People have gotten savvier about finances the last three years. They want to get the best deal and they’ve taken control of their finances. They’re out, they’re researching the products, and they’re finding that indexed annuities are a better value proposition when compared to CDs. It’s opened the door to so much more consumer traffic for these products. When they do the research, people are finding out that annuities are the solution to the fear they’ve had about their finances since 2008.
Jeremy Alexander, President and CEO | Beacon ResearchOn the annuity environment: Even in light of the low-rate environment, carriers are pushing their annuity products out the door. Frankly, it’s because we’re in a good environment for fixed and indexed products compared to CDs and Treasuries. If the carriers can make 3 percent and offer 2 percent on a product, well, in this environment, they’ve got the banks beat. The carrier’s secret: When pricing a fixed annuity, the carrier can go out longer than the rate guarantee while the bank must buy three-year paper for three years.
On product diversity and broker-dealers: It’s good for the carriers to diversify their portfolios because they need that diversity to get a strong rating. With all the suitability involved from the broker-dealer side, it really legitimizes the products and broadens their appeal. There may be short-term pain points, but there will be long-term comfort to the consumer. To broaden the market is a good thing.
On rate hikes: I don’t expect rates to go up anytime soon, but if they did it could get a little bumpy for carriers as “retention” is the name of the game. If rates explode to the upside, and I’m not saying they will, then you could have people saying, Why am I staying with my 3 percent annuity, when the rates are at 6 percent?
Alan Grissom, Vice President of Insurance | Standard & Poor’sOn the changing landscape of indexed annuities: More than ever before, we’re seeing interest from various parties who’d previously not participated. That interest has come from insurance carriers who’ve typically been on the outside looking in as it relates to indexed-linked products, but also from the other side: from banks, from private equity, from trading desks, who are looking to participate and get more in the indexed space.
I think it’s a great story. I think it’s a great story for consumers because they’re going to have more access to products. It’s a great story for producers because the amount of money that’s at stake is tremendous as well. So, when you look at it, there’s a huge pot and it’s only growing.
On the need to evolve: The secret to winning in the space is that you have to evolve. Innovation is going to be the key. And that’s going to be innovation in terms of marketing these products and innovation in terms of developing these products so you’ve got more products that are meeting the specific needs of consumers. And, the good news is, we’re seeing that.
Eric Thomes, Senior Vice President of Sales | Allianz Life Insurance Company of North AmericaOn new product offerings: One area we’ve seen some growth in is in the registered rep space, or in the banks or broker-dealers. The products—the fixed annuities, the fixed index annuities—have really evolved from a product development standpoint over the last five and six years and they are being more well received in those channels. At one point our index annuity sales were less than 40 percent sold by registered reps, now it’s approaching 60 percent. The other channel that historically has sold a lot of fixed annuities is the bank channel, and we’re seeing banks sell more indexed annuities. The banks typically sold those three- to five-year rate guarantee products—straight, plain-vanilla fixed annuities. It was a nice complement their CD business. In this low interest rate environment you can go to bankrate.com and see what CDs are paying. The average fixed annuity is paying a little bit better but not extremely better. The indexed annuities, at least the shorter duration, the five-year products as an example—we have a couple of those—we are finding those fit very well in that bank space as an alternative to CDs or straight fixed-rate annuities.
Dana Pederson, Vice President of Annuity Products | The Phoenix Companies, Inc.On guaranteed death benefits: There’s a big surge in guaranteed death benefits on indexed products where there’s a guaranteed, specified rate of return upon death. We saw that trend years ago in the variable annuity space. Now it’s coming to the indexed side. These products have really picked up in the last year with the top 20 companies offering some form of death benefit.
On the benefits of having more players in the market: We’re seeing more variety, more competition and increased suitability in annuity products. The broker-dealers and wirehouses couldn’t get past the bad rap of the products for a long time. They now are beginning to realize the benefits, and see that the industry has taken steps to increase the disclosure, the suitability and the monitoring of the products.
On innovation: I think we’ll have more registered products. Companies have been filing new products on the registered side. Also, we’ll start to see even more combo offerings. If hurdles can be cleared, we could see a surge in the annuity/LTCI combo space. We thought we’d see those a few years ago, but we could finally be catching up as producers get more education and licensing on the long-term care and health side of the business.
By Daniel Williams
From the December 01, 2011 issue of Senior Market Advisor