Industry estimates show that only about 1% of annuities enter the payout phase. The question is, why? asked William Borden Ayers at a conference here.
A principal of The Diversified Services Group Inc., a Wayne, Pa., research firm, Ayers was among several speakers who probed stress points insurers and annuity marketers are facing in the retirement income market.
The speakers were addressing the first retirement income conference to be offered by the National Association for Variable Annuities, Reston, Va.
Market positioning is occurring and the opportunity is here, said Ayers, alluding to aging baby boomers, prolonged longevity, and other retirement-related trends. Yet, annuitization rates are low, he said, and many insurers continue to focus on the accumulation phase of life, not the income or distribution phase.
In research his firm recently conducted on immediate variable annuities, consumers had many reasons for not annuitizing. For instance, “they didnt understand annuity payouts,” Ayers said, “and they had no explicit plan for spending and managing their retirement income.”
Furthermore, “they said they are concerned about losing control of their assets. And they lack focus about what their responsibility is for income management and what the financial impact of longevity will be in their lives.”
As for the producers surveyed, Ayers said some displayed a “negative bias” about annuitization, feeling its “a bad deal for the client” or that industry positioning on it is confusing. Others fear they may lose clients after annuitization; compare it to systematic withdrawal plans; or want to know more about the related tax issues.
Finally, Ayers said, the survey showed that a number of financial services industry executives are themselves hesitant to move forward on income products.
For some, he said, “being first to market here is not a priority.” Others lack a firm commitment (resources, strategy, buy-in, etc.) to developing income products, while still others are adhering to “old thinking” on product development initiatives.
In short, annuitization is not part of the institutional equation for many companies, Ayers said. The result? “Limited sales emphasis and marketing support.”
In fact, he said his firms 2001 IVA survey found only 17 IVA products are currently on the market; eight IVA alternative products or emphasis programs are available; and 24 programs that emphasize annuitization are available. Over 85 VA providers were surveyed.
“This is so, even though the average case size is large–$122,000 for IVAs and IVA alternative products,” he said.
The average case size alone “is a good reason to get into the business,” Ayers observed.
But to be more successful in the IVA market, he suggested companies will need to address several market drivers and issues. These “drivers” include lifetime income, health care, and legacy needs.
The “issues” include increased longevity, dependency on defined contribution plans, lack of understanding and the consequent need for advice, and concerns and worries about fund management.
Allmerica Financial Services, Worcester, Mass., likewise sees strong opportunity in the IVA market, said Mark Hug, chief marketing officer of the company, which came out with an IVA a little over a year ago.
But the products should offer some kind of floor on the payout, said Hug, in speaking about some of things his company has learned about the market. In addition, the products should offer some type of liquidity.
Also, provide targeted sales support that includes the customer as well as the producer, Hug said, and “keep everything simple.”
Designing IVA products does raise some difficult issues, the executive conceded. These include working out complexities involved with asset allocation; keeping product literature focused on income management rather than the product itself; and various systems issues (surrounding fund transfers, withdrawals, etc.).
The field, he stressed, needs adequate training. “And dont stop,” he added. “You need constant persistency” to make it work.
To penetrate the market, insurers and producers need to reposition themselves to serve the customers income management needs, suggested John A. Benevides, managing director of the Financial Services Group of the Corporate Executive Board, Washington, D.C. “This requires a new mindset–one that focuses on service, not product.” It also takes a focus on the long-term, plus a flexible platform for tailored retirement services, he said.
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.