“What is the issue with today’s equity index annuities?” asked Steven Phillips here at the 2005 Producers’ Forum & Expo of the National Association for Fixed Annuities, Milwaukee, Wis.
The products first came out 10 years ago, but they’ve been “all the rage” in the last couple of years, noted the director of agent education at Creative Marketing International Corporation (CMIC), a major index annuity distributor based in Shawnee Mission, Kan.
“So, what changed?” he asked.
The answer, he said, is the environment changed and so did preferences. “It’s really a simple story,” he said. “These products are about principal protection, just as with traditional fixed annuities–that is, safety, security, tax deferral and minimum guaranteed interest rates.”
Phillips was among several speakers who examined the index annuity’s market position in 2005.
The products do offer “growth potential without market risk,” he said. But the sale is not about upside. A better approach would be to say “they share in some upside.”
Older people buy these products not because they are scared of dying, Phillips added. “They buy them because they are scared of what lies ahead if they live long.”
In presenting the product, agents and financial advisors need to address some index annuity myths, said Michael Tripses, executive vice president and chief actuary at CMIC.
One myth, from several years ago, has to do with bad information. For instance, some people predicted that the products would be a footnote in terms of other products.
But now, the market has a potential to do $30 billion in sales in 2005, Tripses said. “That’s evidence that the bad information is resolving itself.”
Later, he added that he thinks the product now has passed the tipping point, and he predicted it would see strong sales on through 2008.
A sign of the growth is that “the regulators are coming after the product” and the media are running more stories about it, too, he said.
Further, distribution now has broadened from the original insurance channels, Tripses said. For instance, banks are selling index annuities and so are registered reps. “In fact, 55% of the people I’m recruiting are registered reps.”