Life and annuity professionals have eyes firmly fixed on insurance products that consumers will need and can afford during the prolonged period of financial turmoil that 2009 is likely to see. Here are some of their forecasts.
Even though it will likely be a rough year for the economy, brokerage general agents and their producer partners will keep working with insurance companies to develop the most competitive, cost-effective products they can, says Gary S. Dworkin, chairman of National Association of Independent Life Brokerage Agencies, Fairfax, Va.
Some life carriers will not want to do much product development because money will be so tight, concedes Dworkin, who is president of Dworkin Associates, Inc., Rochester, N.H. But he says NAILBA members will remain committed to finding–and selling–the best products all the same.
“Insurers that don’t keep developing the best value proposition in products simply will not have them sold,” predicts Dworkin, explaining that the independence of BGAs and the large volume of business they control will influence this outcome.
Some annuity companies will be scaling back development efforts, agrees Tom Buckingham, senior vice president-life and annuity product development for Phoenix Companies, Hartford, Conn. “But they won’t scale back to zero,” he adds. “Instead, they’ll use their dollars more wisely.”
The annuity market is so big that the companies can’t stand idly by, he says. “They have to take action.”
The strong companies will keep manufacturing quality products, recession or not, sums up Dworkin.
What will be the hot button issues for products in 2009? “Guarantees and equity exposure,” says Buckingham, noting that his company’s market research and annual trending data show that “people will need both to achieve the lifestyle they want.”
Also, people are increasingly concerned about outliving their assets–the longevity risk, he says.
And, due to the coming change in Administration, change and clarity in tax treatment will become important–for example, concerning estate taxes, and income taxes for the high net worth, Buckingham says.
In general, observes Dworkin, if the economy is under great strain, people typically look across the dinner table and see the people they care about and want to protect. “So they will find and buy the best life insurance tools that will provide protection on the most economical basis.”
If the economy improves later in the year, he says, “the dynamics will change–to a preference for cash value vehicles with newer features.”
But overall, he says, “every company will try to find a way to sell the agent and client what they want to buy.”
What life and annuity trends will dominate the year? Here’s a snapshot, first looking at annuities and then life insurance.
Annuities. The product picture here is iffy in some areas, such as the status of fixed indexed annuities, but the overall direction is toward guarantees. Examples:
Proposed Rule 151A from the Securities and Exchange Commission. Bill Atherton, managing director of Atherton Group, Pittsfield, N.H., believed the SEC would adopt this rule, as it did on Dec. 17. However, he feels changes could occur at the SEC, due to the new Administration, that might impact this.
With the rule going through, “expect to hear a lot of noise and opposition” from the annuity industry, Atherton adds. But also expect indexed annuity providers to develop back-up plans, he says, and expect to see “fire sales” of fixed indexed annuities led by annuity marketers who are trying to sell those policies “while they still can.”
Traditional fixed annuities. Look for explosive growth here, says Atherton. The products won’t have high crediting rates, he allows, adding that the rates may in fact be lower than they were at the end of 2008. However, he says, “the guarantees on these products will be in demand.”
Income annuities. “Expect continuing and possibly exponential growth in single premium immediate annuities,” says Atherton. Why? “The demographics are there, and the recognition is growing that guaranteed lifetime income is essential.”
Michael Gallo, senior vice president-retirement income, New York Life, New York, has the same expectation. In fact, he is predicting his company will experience “continued double-digit growth” in income annuity sales in 2009. As 2008 ended, he notes, these sales were growing by 45%.
Guarantees from a strong company are particularly appealing in today’s economic climate where people see what can happen to non-guaranteed investments, Gallo contends, noting that people can easily run out of money if they try to finance their longevity themselves.
Today’s low interest rate environment is a factor, too, he says. The notion of living off interest from products like bank certificates of deposit and money market accounts is, he believes, “driving investors to consider income annuities as a means of boosting payouts and maintaining lifestyles, especially in view of the unique risk pooling benefits these can provide.”
The industry has to develop simple retirement income solutions, simple processes and simple marketing, stresses Chris Grady, president of Genworth Retirement Services, Richmond, Va.
People who will be retiring in 2009 will be facing 2 black holes, he continues. “One is how long are you going to live? The other is what are your health care costs going to be while you live longer?”
The challenge will be to create solutions that will ease the customer’s pain or worry in these areas, Grady continues. This won’t happen at a point in time, he notes, but will be an evolution comparable to that experienced by the fast food industry, starting with McDonalds in the 1950s.
Soon, Grady predicts, “the marketplace will be screaming for solutions. People will be saying: ‘I want lifetime income.’ And, the industry will recognize not just the opportunity but also the needs.”
Variable annuities. VAs will have a rough sales year, predicts Atherton, due to uncertainties about equities.
But the hurdles will be mitigated somewhat by the addition to VAs of living benefit features, he says, citing guaranteed minimum withdrawal benefits and guaranteed minimum income benefits as examples. “Many people won’t buy VAs without those features,” he explains.
However, Atherton cautions that the cost for the guarantees will be going up: “Some might cost as much as 100 basis points compared to today’s 60 bps.” In addition, “many guaranteed withdrawal options won’t be as high as today’s 5% or 7% options.”