Go SNAT/Annuities, Week 3 File: 0003VAJN Lines: 147 Slug: VA hot features
As insurers contemplate which bells or whistles will attract buyers to deferred variable annuities, overall performance remains the consumer's top priority, executives say.
For that reason, asset-type features and benefits have become the hot VA selling points.
"We believe the underlying fundamental reason to purchase a VA will be performance, and the number one item is for products to have a wide range of features and benefits," said John Hele, senior vice president, Merrill Lynch Insurance Group, Plainsboro, N.J.
Asset-allocation, automatic rebalancing and dollar cost averaging are three features which help reinforce an annuitant's long-term goals, said Louise Kuo, vice president and annuity officer of Prudential Annuity Services of Liberty Corner, N.J.
To determine those goals and how to rebalance investments automatically, Pru agents and their clients first develop a plan by completing an asset-allocation questionnaire.
"This is another tool for the customer and agent to discuss long-term goals and investment strategies and keep to their plan," she said.
Investment flexibility is another issue linked to performance, and for Ms. Kuo, flexibility addresses an annuitant's investment reluctance.
"We find customers know they need to be in the stock market but are not comfortable at first," she said.
Products that allow the annuitant to gradually move from fixed accounts to some of the more aggressive sub-accounts are one way of providing the flexibility consumers seek, executives point out.
Fund types are another. This is a key reason many insurers have been adding an increasing number of fund options to their policies. Pru, for instance, recently added an aggressive growth fund and a small-cap index fund to its VA.
"Investments going into a VA are for the long-term, so we want our customers' funds to be growing aggressively rather than incurring lower returns associated with other investments," Ms. Kuo said.
In addition to the proliferation of fund types to provide investment flexibility, products which provide the ability to invest in outside funds are becoming more prevalent.
"Traditionally, the largest selling products, and probably still, are those from one mutual fund company. The trend, though, is to offer multi-manager fund products, or ones with a variety of funds from different managers," said Mr. Hele.
"However," he said, "the fact that you have different managers does not mean you will get superior performance. In other words, one mutual fund company might do well in a particular period, while another might not."
As the trend to multi-manager fund products shakes out, Mr. Hele said a particular company's adeptness will establish its place in the market.
"Long-term track records and the depth of their expertise will begin to determine market share, just as it has in the mutual fund business," he said.
Another important feature in today's deferred VAs is some form of an investment guarantee. An enhanced death benefit feature, for example, can lessen a consumer's reluctance to aggressively allocate assets, executives say.
Ms. Kuo said Pru's Discovery Preferred product allows the beneficiary, upon the death of an annuitant, the greatest of the contract fund value or the highest value of any three-year anniversary.
"Our customers really like this. It provides them with greater confidence and peace of mind when they're aggressively investing in the stock market," she said.
However, performance and investment choices, or "the plain vanilla," are still the prime incentives for buyers, said Rich Murphy, senior vice president for financial and actuarial considerations at Fidelity Investments Life, a Salt Lake City, Utah subsidiary of Boston-based FMR Corp.
"Our customers are much more interested in performance and, maybe, expenses. We don't find a lot of people climbing the walls for death benefits, although for some it might be a consideration.
"We offer stripped down asset-management. That's what our customers demand," he said.
Regarding enhanced death benefits, Mr. Hele agreed that clients want some type of a guarantee. He emphasized, though, that products need to stay focused on performance, liquidity and service.
"You need to have a very good all-around package. It doesn't give you a competitive advantage to have a particular feature that somebody else doesn't have. It comes down to performance, service, liquidity and guarantees," he said.
The service arena, including services to both client and agent, will be another factor in determining a product's or provider's ascendancy in the market, added Mr. Hele.
"Those who train their sellers well and provide good service to their clients, we think are going to do very well," he said.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January, 15 1996.
Copyright (C) 1996 by The National Underwriter Company in the serial publication.
All rights reserved.
Copyright in this article as an independent work may be held by the author.