It's Showtime For SPIAs

These designs can be effective in addressing inflation concerns, but there are still others.

Index-linked SPIAs can offer an effective way for the annuitant to enjoy market performance without downside risk. Benefit payouts could ratchet up if an external index increases, but stay flat if the index decreases. (This stability would be appealing to the age demographic of SPIA buyers.)

The index participation could be defined based on index changes in the immediately preceding year, in order to avoid issues related to Securities and Exchange Commission’s Rule 151A (if approved for implementation).

An index-linked SPIA seems to have a brighter future than variable SPIAs, in which annuitants’ benefits ride the roller coaster of returns.

Standard SPIA commissions are uniformly around 4%. Why? It’s not clear why, but what is clear is that for many producers, it is hard to spend greater amounts of time presenting an illiquid product to a nervous investor that pays lower compensation. In this environment, the SPIA brochure may never leave the rep’s briefcase.

Future SPIA compensation must be more competitive with alternative products, like deferred annuities. Even if today’s level of front-end compensation is maintained, trail compensation as a percentage of an increasing benefit stream could be added.

There are numerous other approaches to spur SPIA sales–train and deploy dedicated SPIA wholesalers, tap into a receptive registered investment advisor channel for the products, and create a true branding program around the product, including the most basic element of naming it something other than “SPIA.”

Further, develop an approach to calculate and disclose a definitive current expected value for the stream of future lifetime income payments. This can be reported to the policyholder on a periodic basis to highlight the value of the SPIA.

Improvement in conveying the benefits of joint and survivor income can lead to much larger and market-effective SPIA sales. Linking SPIAs and long term care or disability income features to leverage the pricing synergies of the benefit types allows for benefit kickers upon confinement or disability.

Initiatives to target annuitants in average to slightly impaired health can expand the size of the SPIA pie, too.

Even the simple administrative process of mailing the annuitant a benefit check should be viewed as another customer “touch point” and can be made more robust by adding periodic loyalty sweeteners and cross-selling additional products.

SPIAs are showing signs of life. The life insurance industry can serve its clients well by continuing the momentum through better products, marketing support, and higher commissions.

In a nutshell, baby boomers need SPIA solutions.

Timothy Pfeifer, FSA, MAAA, is president of Pfeiffer Advisory, LLC, Libertyville, Ill. His email address is [email protected].