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October 07, 2001 at 08:00 PM
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Several articles have been written about abnormally high annuity lapse rates. Generally speaking, much of the blame gets placed on agents and their lack of loyalty to insurers.
As an agent who has sold hundreds of millions of annuity premiums in my 26-year career with an array of companies, here are some of my observations on that.
As I see it, there are four key factors to keeping annuity business on the books. They are listed in the chart on this page.
Please note that all four factors are heavily slanted towards new and in-force policies. Once the surrender penalties expire, its too late to try and correct past errors.
The biggest factor in retention of annuity assets is the interest rate. If clients feel they have received, are receiving, and will continue to receive a fair rate, the majority will leave their money where it is. Conversely, if they feel theyve been taken advantage of, theyll move their money at the first opportunity.
For example, if a client purchased an annuity seven years ago and earned 8% the first year and 4.5% since then, that money is going to move and it has nothing to do with the agent. In fact, the original agent is probably the last person in the world that client will do business with and he wont do business with that company again, either.
Why did the insurer drop the rate so low? Two possible answers are:
–The annuity was planned to pay a low renewal rate in order to increase commissions and profit margins. The problem is that neither the agent nor the client knew the plan.
–Another company purchased the original company. The new owner is financing the purchase price by taking a larger profit spread. This is a very common occurrence in todays world.
Another factor in annuity retention is how the insurer treats clients. There are many companies that treat customers with respect and dignity. They make it easy and attractive to do business with them. However, other companies too often treat customers as an adversary with a home office attitude of: “The money belongs to us, not the client.”
When a client wants to take a little money out of his or her account, the insurer has the opportunity to make a friend out of that customer. But, the money-is-ours companies often try to throw up as many roadblocks as possible. In the process, those companies make mortal enemies out of their clients.
