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Annuity carriers, like their counterparts in other insurance segments, are focused on meeting changing user expectations, modernizing their products and services, and complying with new regulations. Technology is a major factor in addressing each of these areas; it can also help lower costs and enable a more rapid rollout of products and changes. Millennials and Generation Z are taking over the workplace, and their user preferences are becoming more important. Staying competitive in the growing annuity marketplace will depend on carriers’ ability to adapt.
Products Are Changing to Meet Consumer Expectations
Annuities are divided into three main products: fixed annuities, variable annuities, and equity-indexed annuities. The market is heavily concentrated, with 75 percent of sales coming from the same 20 companies, according to LIMRA’s U.S. Individual Annuities Sales Survey. Annuity sales are up across the board, but especially in the fixed annuities segment. LIMRA predicts that annuities will continue to grow 5 percent in 2019, with fixed annuities growing 11 percent. This is partially because as an increasing number of Baby Boomers retire, they are turning to fixed annuities, which come in more forms than ever before, for financial support.
Deferred income annuities are also seeing an increase in sales. Insurers have encouraged this trend by offering lower initial premiums, flexible contribution levels and payment options, and shorter minimum deferral periods. Variable annuity carriers are also updating their offerings; consumers can look into products such as investment-only variable annuities, subaccount investment options, hybrid products, and managed volatility portfolios, among others.
Insurers are relying on a broader range of distribution channels and opening products up to a new array of potential policyholders with these new and improved offerings. Some carriers are also turning to nontraditional distribution channels for simpler products. With pensions becoming less certain in many fields, carriers have an opportunity to alter annuity products to meet consumers’ needs. These products should factor in challenges like increasing lifespans and the cost of health care.
Regulation Is Challenging Annuity Carriers
The Insured Retirement Institute (IRI) is focusing on improving access to lifetime income products like annuities in 2019. These efforts include making employers’ fiduciary responsibility clearer as well as protecting guarantees of lifetime income when changing record keepers. The IRI is also calling for appointing board members to the National Association of Registered Agents and Brokers, requiring employees’ benefit statement to include estimates of lifetime income, adopting variable annuity summary prospectuses, and using e-delivery as the default for disclosures of retirement plans.
Both federal and state governments are also taking action to reform pensions and lifetime income products. In a bipartisan effort, the House of Representatives passed the SECURE Retirement Act; the measure is also expected to pass the Senate. The Act would include provisions to include annuities in retirement plans, among other things—something only 9 percent of plan sponsors currently provide. Individual states, the SEC, and the NAIC are all establishing new regulations for security that insurers must comply with. One of these state regulations, New York’s Insurance Regulation 187, goes into effect for annuities carriers at the beginning of August.
As these regulations have come into effect, there has been a shift toward fee-only advisory services, which is affecting distribution support. The value of data aggregators has become more apparent to insurers as agents have become a more independent sales force. IMOs are predicted to shrink by up to 50 percent soon; nontraditional channels and advisors need to be thoroughly informed about the products they’re selling.
Carriers Are Planning for the Future
Insurers such as Transamerica are introducing health-care components into their financial planning by way of long-term care riders for annuities or online initiatives. Annuity carriers can use this link as a chance to educate policyholders on the link between physical and financial wellness, building the customer relationship.
Annuity carriers are facing a shifting customer base as Millennials and Gen Zers continue to take the stage in the workforce and the consumer sphere. These generations exhibit different behavior than previous generations—while they want to learn about their investment options, they would rather learn through digital and self-service tools than physical papers. Carriers should also be cognizant of contact preferences and boost their social media and text strategies over phone calls.
To this end, online annuities options are growing. Companies such as Pacific Life and Brighthouse Financial are working to offer annuities through online marketplaces or sales platforms to appeal to the policyholders of tomorrow.
Individual annuity insurer IT leaders should be preparing for the marketplace of tomorrow just as much as those leading other segments. Modifying product options, improving communication channels for younger customers, and complying with modern regulations are all vital components of staying competitive in the marketplace.