It is an analogy I like to make often: the shark is one of the most fearsome predators in the ocean, on a relentless search for food. The fish it goes after, such as tuna, are fast and wily, and require a huge amount of energy to catch and kill. The shark is good enough that it can survive on it, but it’s an awful lot of work. Meanwhile, the largest predator in the ocean is the blue whale, which gets that way feeding on some of the smallest and most defensless creatures in the ocean – plankton. The same is true of other species of whale, which live on huge numbers of easily found and eaten prey. Both species can live this way. But which is better?
I make this analogy to point out the benefits of the whale model in business – earning a profit by selling lots of low-cost products or services to huge numbers of people, thereby reducing the risk of a single blown sale. This is not perfect, of course, since every business has transactional costs and the like which makes a simple shark-to-whale comparison easier said than done.
I bring it all up because lately, I have been thinking about annuities. There have been a bunch of news releases on this market over the last few days, and they paint a picture that is encouraging for the variable market, if not all that surprising. Warren Hersch reports LIMRA figures that show yet again the variable annuity market is well outpacing the rest of the annuity market. To such a degree in fact, it’s getting to the point that when somebody mentions the annuity market, I automatically assume they mean the variable annuity market.
This comes on the heels of news by the Insured Retirement Institute that variable annuities sales are set to top $150 billion this year and that over the next five years, annuity options are only going to continue to flourish.