Retirement Income Studies Point Up Opportunities For Insurers, Brokers

Finding: Income annuities (both fixed and variable) have become a growth market for Fidelity Investments Life Insurance Company, Boston, according to Farrell Dolan, executive vice president. Sales reached $1 billion in 2001, and now represent about one-third of the companys fixed and variable sales, he said.

Opportunity: “Its a myth, that no one annuitizes and that therefore, annuitization cant be a good thing,” said Dolan. “The reality is that, when consumers get to see this idea, it is embraced tremendously. (The industrys low annuitization rate) is an insurance industry issue, not a consumer problem.”

Finding: Cerulli has found that “outliving their income” and “paying for healthcare” are the two most important issues for pre- and post-retirees, said Saccocia. Leaving a legacy is also important, she said.

Opportunity: “Many will recognize they need help” with managing these risks, she said. Financial firms can meet this need, she continued, but she cautioned that the type of advice offered needs to be “scalable” in order to be financially feasible.

For instance when the account size is very low, she suggested, provide “guidance” or even “mass customized guidance.” But for accounts of more moderate size, add in “some touch services;” and for high net worth clients, scale up to “recurring” and “holistic” advice.

In any case, “get them early and keep them late” is the message, Saccocia said. The key, she said, is to develop long-term relationships with clients.

Finding: Many retirees who use financial advisors tend to work with advisors they have used for five or more years, said Joshua D. Dietch, a Cerulli consultant who has been studying retirement assets.

Opportunity: “You need to incubate the account and develop the relationship early, or in large part you may be shut out,” Dietch said.

Finding: Many financial planners today do not have the kind of background that leads them to start discussions with clients about topics like longevity and health care, pointed out Saccocia. But those are topics of concern to this market, she said.

Opportunity: Partnering with intermediaries in these areas might help, she said. And “it could create key opportunities for the future.”

Finding: Retirement income planning involves risk management, said Saccocia. The risks include: the security of the underlying investments in the income plan, the risk of outliving that income, the certainty that payments will continue, and insurance protection against catastrophic loss.

Opportunities: Annuities, long term care insurance, income annuities, index annuities, and similar products “can open up opportunities for people to have a much more comfortable living,” she said.

Finding: On average, less than 1% of contracts are annuitized, said Saccocia, while systematic withdrawals “are still the preferred method.” Furthermore, intermediaries who talk to clients about income options are “uneducated” about income annuities.

Opportunities: Start the dialogue about annuitization and income annuities by doing a retirement income needs analysis, she suggested, being sure to look at “secured income, supplemental income, and equity income.” Then, show how annuities can convert some of the supplemental income assets into secured–or lifetime–income, she suggested.

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 8, 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.