Fixed Annuity Trends: Distribution Matters

More annuities are being developed with a Market Value Adjustment (MVA). In todays economic environment, an MVA clause is almost mandatory to protect the insurer from rising rates.

New contracts are more likely to be owner-driven as opposed to annuitant-driven. (The owner-driven annuities trigger death proceeds at the death of the owner, not the annuitant. If owner and annuitant are different and the annuitant dies first, the owner names a new annuitant. Annuitant-driven annuities trigger death proceeds at the death of the annuitant.) In my view, no company should design a new annuity that isnt owner-driven, as these contracts are easier to understand, provide more flexibility to the policyowner, solve lots of commission problems, and most importantly, conform more easily to the tax code.

Another important trend to watch in the future is for contractual minimum guaranteed rates to increase as rates rise. Due to the extremely low current rate environment, many companies have lowered the minimum rates, but as rates rise, the higher minimum rate contracts will be reintroduced to the market. Not because insurers want to do so, but competition will demand it.

Due to the low rate environment, most of the shorter-term MYG annuities, with guarantees running 3 years and less, were removed from the market but will reappear as rates rise.

Still another trend: Annuity applications are becoming much longer and more complicated, with more insurers requiring signatures on disclosure statements.

As an agent, I believe disclosure statements are good. I want the client to sign a statement that he/she understands the key features of the contract, which helps to protect the insurer and me from groundless lawsuits. On the other hand, there is such a thing as overkill. Ive seen disclosure statements that require the policyowner to sign 2 or 3 times, plus initial up to 15 different times. That is totally unnecessary.

One of the most difficult ideas Ive tried to convey to insurers is: The easier an annuity is to explain, the easier it is to sell. The easier it is to sell, the more is sold. The more sold, the higher the profits.

That sounds simple enough. Then why are there so many problems? The answer lies in a nutshell, egos! The belief that “we know more than the other companies and agents and we dont want to hear any other ideas” does a lot of harm to the business and growth opportunities.

Its refreshing when a company asks for ideas from clients and agents on how to make products and forms better and easier to understand. Unfortunately, that doesnt happen very often and thats a trend that needs to change.

, CLU, ChFC, is publisher of Fisher Annuity Index, Dallas. You can e-mail him at [email protected].

Reproduced from National Underwriter Edition, February 25, 2005. Copyright 2005 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.