Annuity sales have hit a rough spot in 2020 as consumers adjust to the economic impacts of the pandemic, including the harsh reality that interest rates are going to be historically low for at least the near term.
These impacts have given consumers a very loud financial wakeup call about the need to protect their incomes and cash flow.
During the pandemic, consumers have gotten first-hand exposure to the reality that their governments cannot be the insurer or funding source of last resort for their key financial needs, including health care, food security and unemployment compensation. Government resources at all levels are stretched more so than at any time since World War II. At the same time, the political process in our country moves to the beat of its own drummer and has clearly shown that consumers need to be able to provide for themselves in difficult times. Financial self-reliance is more important than ever.
The Protection Realization
Seeing this, consumers are beginning to realize that unplanned financial bumps in the road actually happen and that they need their own sources of cash to help them absorb the shocks when they occur.
We have seen more people apply for life insurance protection, pay down their debts, increase savings and look to replenish their emergency funds. They have learned a generational lesson about financial protection. As a result, many households are also resetting their financial values and goals. This makes it a great time to talk to people about the lifelong benefits of annuities. Annuities are a product most people do not understand or have unfounded views about.
These changing financial values and goals are taking place against a background of widespread financial illiteracy. In our country we require more education to drive a vehicle than we do to train people on the basics of personal finance. We see from survey after survey that, first, consumers have little time for money matters (about 2.5 minutes per day) and, second, that consumers have very low levels of financial knowledge, particularly about annuities, at all ages. These facts scream out that financial education and annuity awareness are needed.
Why Consumers Don’t Buy Annuities
Each year LIMRA publishes the Insurance Barometer Study, which I eagerly read. The Study clearly tells financial professionals the keys to improving their annuity sales. Page 31 of the 2020 Study, published in May, details the key reasons why consumers don’t purchase annuity products.
The top 9 reasons given were:
- Have other financial priorities: 72%.
- It is too expensive: 65%.
- Unsure of how much/what type to buy: 63%.
- Don’t understand annuities: 62%.
- Don’t feel I need an annuity: 56%.
- Haven’t gotten around to it: 48%.
- No one has approached me: 47%.
- Do not trust insurance companies: 40%.
- Do not trust insurance agents: 40%.
As you can see, the bulk of the reasons consumers don’t seek out annuity product solutions is due to the fact that they do not fully understand their financial risks and the products themselves, and they have not been approached with a reason to purchase. These concerns can be overcome with targeted efforts aimed at improving financial risk awareness, how annuities are a tool to address financial risks and knowledge of the core product value proposition.
8 Actions Professionals Can Take
Here are some suggestions about actions professionals can take to champion these much-needed efforts.
- Offer virtual financial education events.
- Be the source of truth and integrity.
- Sell annuities by explaining what they are: insurance products.
- Sell the protections and guarantees of annuity products.
- Perform annual virtual check-ups for clients.
- Focus on raising client financial risk awareness.
- Offer combination annuity products to help address risks such as long-term care protection.
- Focus on building life-long relationships, not transactions.
The industry can grow annuity sales despite the current interest rate environment. Annuities, properly used as a tool, provide financial peace of mind and security. Consumers really need to understand the key features and benefits these insurance products bring to improving their financial lives. We need to help them cut through the noise to get at the value proposition for annuity products, and that they are a valuable tool that can be used to reduce financial risk and improve financial security.
Harry N. Stout has been the president of Fidelity & Guaranty Life, deputy chief executive of Old Mutual Financial Network, and managing director of Insurance Insight Group. He is also the author of The FinancialVerse personal finance books and of a new book, Today’s Annuities — A Tool to Create Protected Lifetime Income.