Growing The VA Book–It’s A Front Burner Issue Again
All eyes and ears seemed trained on one issue at the annual meeting here of National Association for Variable Annuities.
That issue was: How to grow the business?
That might seem a no-brainer for members of this Reston, Va.-based trade group, given that VA sales have risen nonstop for the past 10 years, industry wide.
But since 2nd quarter VA sales came in at $58 billion, or 42% of year-end 2000′s figure of $138 million (source: Info-One/VARDS), many executives here were moving about, scouting for new answers.
A rebound in the stock market would help pump sales back up, several told National Underwriter. But they said they don’t want to rely on that alone. Hence, most speakers proffered ideas, lots of them.
Keynoter Jack Brennan, chairman and chief executive officer of The Vanguard Group, Valley Forge, Pa., set the tone with his assessment. In the future, he said, only “best in class” products and services will be acceptable.”
The VA business will become ever more competitive, he predicted, so “mediocre products with mediocre returns won’t cut it.”
Being best in class “doesn’t mean you have to shoot out the lights every year,” he said.
But it does require things like well constructed and durable investment options, and transparent pricing and fees.
Some of Brennan’s other suggestions:
–Emphasize value. “Selling gimmicks will work only one time,” he said.
–Be willing to partner, “to produce top quality and top value.”
–Provide continued constructive innovation. Simplicity should be the goal, he cautioned. “You won’t be successful if the result of adding options only baffles clients.”
–”Put the client first at all times.” This creates an image of a highly competent market that has integrity and truth, he said.
But what if yours is a publicly held company?
“Shareholders and analysts like to see steady, predictable earning growth, with improvement in ROE,” said Mary Ann Brown in an address presenting her personal views. She is president of New England Products and Services for New England Financial, a Boston unit of MetLife, Inc.
Shareholders and analysts “do not appreciate surprises in earnings, even if they are positive,” Brown pointed out.
Therefore, “we need to help our analysts and constituents understand how to more simply measure our companies than with complexities that only actuaries and state insurance departments understand.”
Furthermore, Brown urged companies to stay the course. “Changing direction can hurt a company’s analyst reports and valuation,” she explained.
“For example, redefinition of your core business, based on whatever is profitable that year, is not a good idea. We’ve all seen companies decide to divest themselves of a line of business that used to be an important source of future earnings.
“We need to stick to the business we’re in, and grow it.”
How do you do that? Consider organic forms of growth, Brown suggested. Perhaps add other product lines for existing distribution systems or do some joint venturing.
Demutualization, and acquisitions based on additional distribution outlets are other strategies, she said.
What can distributors do? For one thing, keep in mind that “advice couldn’t be more important to clients than right now,” said David Byrnes, senior vice president and director of the annuity group at SalomonSmithBarney, New York, N.Y.
In view of today’s economic slump, people are looking for security and advice, he explained.
As for product delivery, he said, “we couldn’t ask for a better market to represent the packaging of investments inside a VA.” He pointed to the product’s diversified asset choices, asset allocation, and fixed income options as features that should have tremendous appeal right now.
Also, he said VA death benefits and living benefits “mean a lot to people now. They give clients a (sense of) safety and confidence to stay in the market,” he explained.
But Byrnes urged VA providers to “try to simplify the process” of distribution and to provide more education of the wholesaling force.
“We’ve made VAs way too complicated,” he said. “With all the GMIBs, EEBs, DBs and LBs, you need a Ph.D. in annuities to sell annuities.”
Paul Field, vice president at Sun Trust Banks, Inc., Atlanta, made a case for continued focus on product innovation and also wholesaling and world-class service.
“If you have poor service, you will lose sales,” he said. “It’s that important.”
As for annuitization, he said insurers need to “crack the code” on this.
Right now, he said, “my brokers are not much interested in annuitization.” Most still focus on selling for accumulation, he continued. They don’t look at disbursement of those assets or protection.
Field attributes some of this to people’s fear about losing control of their assets. “People suspect it’s a bad deal, so you need to offer more transparency, in how it works, how it’s priced, and so on.”
He also suggested insurers offer more options and flexibility in annuitization.
“And find a way to pay brokers to annuitize. If they’re not paid, they won’t do it, especially if they see the assets permanently leaving the brokers’ control,” Field said.
If you’re a planner, this is the time to “get in front of your clients,” said Michael E. Treske, senior vice president and managing director of the financial planners channel at Manulife Wood Logan, Inc., Stamford, Conn.
“This is contact sport. You need one-on-one meetings, not just by phone, fax and Internet. It’s face to face.”
It’s a good time to consider the rebirth of the public seminar, he added. “People are upset, concerned. They’re coming to hear things. They want the human touch.”
Regarding the recent market downturn, Treske suggested pointing out the historical perspective, how the market rebounded after other times of crisis.
In addition, guarantees are “very important right now,” he said. “The ratings of the carrier also matter.”
A NAVA roundtable raised other ideas. For example:
–”Investors want simplicity, convenience, personalization and service, so the broker’s role will shift to provide help, context, perspective, clarity and service,” said Tim Armour, managing director, Morningstar, Inc., Chicago.
–As power in the market shifts to buyers and investors, “ignorance will no longer be a profit center, added Armour. Buyers will demand “products and services when, where and how they want it.”
–IRAs deserve more of the industry’s attention, contended Mark B. Whiston, president of Retail and Institutional Services for Janus Capital Corporation, Denver, in referencing the amount of retirement funds expected to roll over in the next few years. “We need to help these people invest their money, so it can do what it’s intended to do.” But he said the pricing must be fair and reasonable; companies should invest in technology to support the pricing; and firms should consider investing in developing a recognizable brand identity.
–Consider globalization. “For us, the market opportunity is very great,” said Wade Dokken, president and chief executive officer of American Skandia, Shelton, Conn. The opportunities come from penetrating new markets, establishing a global presence, building a global brand, and tapping into a new asset pool, he said.
Turning to product particulars, Brown, an actuary, said asset allocation programs are essential, “especially given the recent volatility,” because the programs will help deter buy high/sell low tendencies.
Also, “offer enough guarantees and yields in the fixed account bucket of variable products to dissuade customers from running toward stand-alone fixed products,” when interest rates rise or equity markets fall, she suggested.
Rushing to stand-alones deprives consumers of the option of moving into diversified investment choices long term, she explained. This could even become a compliance issue, she cautioned. “Imagine someone comparing the compound effect of diversified performance versus fixed return over decades–their retirement nest egg a fraction of what it could have been if they had stayed with the option to diversify investments, and held them long-term.
Looking at the overall VA climate, Treske said, “we need to promote how good we are as an industry.” For instance, regarding concerns about expense ratios in the product, he said: “I am here to say we can justify those costs.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 5, 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.