NAVA Panel Sees So Many VAs, So Much Confusion

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Rancho Mirage, Calif.

Variable product sellers should strive to keep their marketing messages and products simple, said Larry Sullivan, president of Legg Mason Financial Services, Baltimore, Md.

“Dont confuse people,” he urged executives here at a marketing conference of National Association for Variable Annuities, Reston, Va.

“Promote (the things that) financial advisors are comfortable promoting,” Sullivan continued. “That is, promote the VAs professional asset management, tax deferral, and basic death benefit guarantees.”

Insurers that go the other way and promote lots of features and options create time-consuming work and confusion for producers, he contended.

“Do we want the big producers spending their time looking at spreadsheets” in order to be able to sell the products? he asked rhetorically.

No, Sullivan said, “were into basics, not Ouija boards.”

He was speaking at a panel on how VA product proliferation is affecting VA sales. The mood among the speakers was definitively on the side of “deal with it or suffer.”

“Were fooling ourselves,” declared panel moderator Matthew Sharpe, in referring to long-held notions that product proliferation will help companies grow their books of business.

If the industrys product proliferation goes on much longer as it has, he predicted, “the value of each of our franchises will decline.”

Sharpe, the vice president of business development for GE Financial Assurance Company in Richmond, Va., recalled that product innovations in the VA business started multiplying in the 1980s. But he said the decade of the 1990s was when carriers really began making “all kinds of tweaks” to the products and creating the multiplicity of products that exist today.

The result is that carriers have been “fighting” with each other over smaller and smaller space, to the point that its difficult for companies to grow market share and many are dealing with negative new money flows, Sharpe said.

“Somewhere, weve forgotten what we are all about,” he asserted.

The industry needs to concentrate on new product development, not tweaking products it already has, he continued. It also needs to attract new producers for its products, and to uncover new consumer needs that it can meet, he said.

A third speaker–who also has the last name of Sharpe–actually likes the product proliferation he has seen. “I think its great,” said Michael Sharpe, first vice president and national sales director for annuities at McDonald Investments, Inc., a subsidiary of KeyCorp in Cleveland, Ohio.

When producers understand what the new features are–for instance, the various living benefit features in VAs–they can sell a lot of products having the features, the McDonald executive said.

But proliferation still does pose a problem, Michael Sharpe indicated. Now, he explained, VA carriers need to be sure they educate not just the producers (about the features), but also the support people at the home office and the wholesalers who promote the features to the field.

“If the wholesalers dont understand what they are talking about, how will the producer?” asked the Cleveland sales director.

Another issue, Michael Sharpe said, is that the carriers have to be sure the information they deliver about the new features is correct and fully disclosed.

In some cases, he said, “the information was assumed to be understood and therefore was not in the prospectus.” That creates problems, he indicated. “We need full disclosure, so our customers can understand what they are getting.”

One area where product proliferation is very active is in the expansion of the number and types of mutual funds offered inside VAs. Insurers have added to the fund mix for several reasons, noted Mark Kowalczyk, managing director at Ibbotson Associates, in Chicago.

These reasons include: to differentiate their products; neutralize the competition; increase recognition of fund names; and bring stronger performers and popular asset classes into the products.

This has created more choices and increased opportunity to hedge against poor performance, Kowalczyk allowed. But it has also led to investor confusion and fund redundancy, he said. Certain new product features also add to confusion, he contended.

Possible remedies might be to tie the new benefits into the risk tolerance questionnaire, Kowalczyk suggested. Also, perhaps offer additional asset allocation models, with the features factored in. And, “if your grandpa cant understand the marketing copy, rewrite the brochure! Simplify it!”

“We have a phenomenal product that can help people accumulate wealth for retirement,” concluded Sullivan of Legg Mason.

“But we have to keep it simple, if we truly want to grow this business.

“Dont keep complicating the product. Focus on the professional asset management, tax deferral, underlying guarantees, and lifetime income. As for the other features, they may be helpful to reps but not to consumers, so they wont help us grow the business.”

Michael Sharpe advised the industry to “make sure (the reps) understand the product and how it works so they can explain it simply to the client.”

The industry needs to be zealous on that, agreed Matthew Sharpe. “We need to show how the product stands in its own space, as compared to anything else.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 11, 2002. Copyright 2002 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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