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Inde Annuity Reintroductions: The Innovation Continues

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In a market with nearly 250 different products, index annuity carriers are vying for the agent’s business. They’re doing their best to give a full range of benefits to fit every client’s needs.

As a result, the market has seen reintroduction of numerous components from the past, plus offers of a few new twists that deserve attention.

Crediting Methods. Although there are over 36 different crediting methods identified in the market, several new variations are emerging.

A returning carrier has introduced a design that provides a sense of control in an uncontrollable market. This index annuity series features a rolling monthly averaging crediting method with a high-water feature that gives the annuity owner the option of locking in gains at any time during the term. If the consumer feels that the index is at a high level that it will not return to later, the customer simply opts for the lock-in feature, thereby protecting any gains that have been earned to that point.

A new ‘inverse annual point-to-point’ method has been reintroduced after being used by a couple of other carriers in the past. Policy owners receive gains, up to a specified cap, in the event that the index experiences a decline. This method is for folks who want to gain from others’ losses.

Two carriers have crediting methods featuring different “soft cap” design variations. This method offers participation in index gains, up to a specified cap, and then further participation in excess of the cap.

Finally, a fast-growing company introduced a simple variation of the monthly averaging method that credits gains at the end of a two-year averaging period as opposed to one year.

Friendly. Some client-friendly features available in past annuities have returned. One insurer has refreshed its new index annuity series by offering clients a 60-day window with no surrender charges five years before the end of the stated surrender penalty term.

In addition, three new entrants to the index annuity marketplace offer return-of-premium options.

Surrender periods. More products are being introduced with seven- and eight-year surrender periods than ones with 14-year periods or longer. For a while, it seemed the 12-year period was becoming the new 10-year (referring to the length of penalty period). But many carriers now are saying that surrender period charges and length could be declining as more states examine and react to long surrender periods.

Commissions. Agent compensation is going down. Of the 18 index annuities launched in the last two months, two had an agent commission of 10% or higher, but 11 had a commission of 6.5% or lower.

Joining The Market Trend. Variable annuity carriers have entered the market, with three VA players introducing index annuities within the last year.

In all, there are now 46 carriers offering index annuities, a total not seen since 1998 (see chart). The new entrants have increased the bank share of the index market to 5%. Also, distribution through wire houses has risen to 2%–up from a fraction a few years ago.

Although more than 19 out of 20 sales are still conducted by independent index annuity producers, the channels are changing.

Insurance carriers are continuing their quest for value-added features in index annuities. The goal is to draw the attention of agents and consumers in an ultra-competitive marketplace.

Sheryl Moore is principal of, an index annuity resource in Des Moines, Iowa. Her e-mail is [email protected]. Jack Marrion is president of Advantage Compendium, a St. Louis-based research and consulting firm. His e-mail address is [email protected].

The index annuity market has nearly 250 different products, so the carriers are vying for the agent’s business


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