Its an interesting time for variable annuities. Sales are soft, although theres some anecdotal indication that a rebound is underway from first-quarter doldrums. 1035 exchanges are increasing, scrutiny on suitability is very high, and insurers are scrambling for market share. Its going to be tough.
I expect that even some rebound will result in soft VA sales this year. Additionally, competition is fierce. There are now some 500 VAs, roughly double that of 5 years ago. Insurers will need to work more closely than ever with their distributors and be more cost-conscious than ever.
The winners in this environment will be producers and annuity buyers. The insurers who know how to please both will also be winners. Insurers who make products too producer-oriented will lose and those that ignore producers altogether will also lose.
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What exists here is a classic rising supply, falling demand situation. There are some who believe that this is catastrophic. It will lead to too much pressure being placed on insurers to get business. It will lead to too much pressure being placed on brokers to get business. Corners will be cut, quality compromised, and buyers confused.
I dont agree. To be sure, it wont be an easy time, but increased competition has positive outcomes, not negative.
Increased competition leads to increased consumer choice. It serves to allow for more specific product fits for more buyers. One size fits all is never even contemplated. A particular product can uniquely fill a particular need. Consumers benefit.
Increased competition leads to lower costs. As more carriers compete for fewer customers, any fat in their products or processes will be cut out to allow for the best possible price. Weve started to see this with VAs, but I dont think its quite taken hold yet.