What Will It Take For The VA Industrys Great Boom Ahead To Succeed?
For many variable annuity market veterans, 2002 marked a significant crossroad, as the focus on the retirement income management needs of Americans was punctuated by a noticeable increase in the number of retirement savings and risk surveys.
For the annuity industry, these studies provided continuing evidence to support annuity product focus on the payout or distribution side of the business. With many of the 77 million baby boomers facing significant retirement income shortfalls, the marketing opportunities going forward are significant.
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While the leading edge of the baby boom generation will not begin turning 60 until the year 2006, the educational challenges to raise the awareness level of consumers and distributors alike to the advantages of income products will take a number of years.
Additionally, effective compensation models must be present for the products to be recommended in the first place.
Last year, sales of fixed annuity income products were estimated at $5 billion, according to LIMRA. And the Diversified Services Group (DSG) annual survey of the VA payout market noted total sales from both immediate VAs and annuitizations from deferred products to be approximately $2 billion. These figures are currently a very tiny fraction of the combined annuity sales nationwide.
For the payout or distribution side of the annuity to become a success, three challenges must be effectively met. I have often referred to these as the three-legged stool of the income product, since the stool will not stand with just two legs.
For annuity product issuers who have a focus on the payout side, the new paradigm in 2002 became one grounded in broker retirement income education. No longer was the product to be marketed as a stand-alone solution to a retiree or pre-retirees retirement income needs, but as an integrated solution within a holistic framework designed to address a broad range of identified retirement needs, from long term care to cost-of-living adjusted income.
Several companies launched broker education programs in tandem with new retirement income riders for both deferred VAs and fixed and variable immediate income annuities. In so doing, the first leg of the three-legged stool has begun to be addressed.