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In 2001, EIAs Set RecordsBut For Sales, Not Innovation

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Although fixed index annuitiesalso known as equity index annuitiesset new sales records in 2001, the product development front revealed design tweaking rather than bold innovation.

This may change in the coming year, however. Well discuss why momentarily. First, the current situation:

Uncertainty over the timing and direction of the stock market, in combination with falling portfolio yields and volatile option prices, led carriers to take a “wait and see” position.

New product introductions were lower than any previous year, according to our latest tracking information.

The most significant development was the increasing use of index annuities with an initial premium bonus of 5% or more. Over the last year the market share of products with first-year premium bonuses of 5% or greater rose from 7% to almost 25% of index annuities sold. (See Chart 1.)

The commissions on new products continued rising. The average index annuity commission received by an agent represented 10.60% of premium. Average weighted commission paid by carriers ranged from 3.37% to 14.19% of premium collected. (See Chart 2.)

Of the new index annuities that were introduced in 2001, most typically continued along the design path of the previous years. That is, they arrived to market with longer surrender charges, higher commissions, and more index choices within the product itself.

However, as noted above, 2002 could see a radical new direction.

Banks and investment firms have largely ignored the index annuity market, but that could change. Im receiving a continuing flow of calls from wirehouses, advisory firms and investment houses about developing index annuities.

At this point, the product talk coming from these calls centers around products that have simple crediting methods, short surrender periods, and low commissions–the very opposite of recent trends.

Therefore, it is possible that the index annuity market a year from now could be segmented into products designed for a fee-based clientele as well as the more traditional annuity buyer.

is president of The Advantage Group, an index product research and consulting firm in Maryland Heights, Mo. His e-mail is [email protected]

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 10, 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.

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