Hints From A Broker On Introducing A New Annuity
In the past two years, several insurers that had never written heavy volumes of premium before have entered the fixed annuity sales arena. While most of them have done a super job, it is clear that some were not properly prepared before introducing the annuity to the marketplace.
If a company wants to sell larger volumes of annuity premium and do it right, here are some hints to help get started in the right direction. They are based on my experience as a broker who works with multiple products and has seen vast numbers of annuity introductions over the years.
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Step 1: Determine how much premium the company can accept. Factors determining the amount include drain on surplus, increase in manpower, and an efficient system to process and service new business.
Step 2: Determine the desired profit spread between what yield is paid to policy owners and the commissions paid to agents. This decision will influence who sells the annuity.
Step 3: Determine who will produce the business. Annuity sales are derived from four distribution channels: professional agents, wire houses, financial institutions and so-called “commission hounds.” The annuities sold by each channel are different, and they very rarely ever cross paths.
The professional agent wants to sell high quality, consumer-oriented annuities with a low, but fair commission. Wire houses sell annuities in similar fashion to professional agents, but normally prefer a proprietary product that no one else can sell. Generally speaking, financial institutions prefer to sell annuities with higher commissions and are more likely to sell portfolio rates. These three channels generate basically the same profit margin for the company.
The annuities sold by the commission hounds–agents wanting the highest commission deals they can find with very little regard to anticipated renewal rates–generally also reap a larger profit margin for the insurer. The business tends to stay on the books longer because of the onerous surrender charges and because a large number of the agents quit the business before the penalties expire.
Step 4: Decide what type annuity is to be sold: floating rates, CD-type, equity indexed or variable annuities. This is a tough decision because each has different advantages and disadvantages. In todays business environment, there is absolutely no question that CD-type annuities are dominating the marketplace. Clients are voting with their dollars and are electing CD-types by a landslide as the annuities of choice.