One word sums up the current core features of today’s variable annuities: “guarantees.”
The guarantees attach under a variety of riders: guaranteed accumulation benefits, guaranteed minimum income benefits, guaranteed minimum withdrawal benefits, and guaranteed enhanced death benefits. The guarantees also extend to a variety of special considerations such as guarantees for life and guarantees relating to joint lives, step-ups, bonuses and lock-ins.
It may seem incongruous to refer to these guarantees as core features, given that they are provided by optional riders and many may be elected after issue of the base contract.
But it’s not incongruous because the guarantees are provided by rider to give prospective purchasers the opportunity to select the type of benefit or combination of benefits that best serves their needs and concerns. In addition, once elected, the guarantees are integrated into, and adjust, the core features of the contract–be it covered lives, accumulation value, partial withdrawal rights, income options or death benefits.
These guarantees generate surprise among many constituencies, including regulators. It is not clear why they evoke surprise. The real surprise is finding that the constituencies are surprised and that they do not readily accept insurers’ providing guarantees.
But that is what insurance companies do and do best. When convergence of the various financial institutions was on everyone’s mind, it was universally noted that what insurers brought to the convergence table was risk management backing up guarantees.
That is still is what insurers bring to the table. Furthermore, in addition to bringing it to their own smorgasbord table of riders, there is an emerging focus on bringing these insurance guarantees in connection with related services or products.
Meanwhile, the investment advisor and mutual fund industry segments are marching to the same drummers–the baby boomers–that the insurers are targeting with their boomer-focused riders. Advisors and mutual funds recognize that demographics in the United States have changed the investment focus–from accumulation to distribution. For them and for insurers, the 2 controlling concepts are investment risk and guarantees.
Those are the same 2 concepts that are driving the boomer investors.