This is the first of a series of articles that will be published on the annuity space. Subsequent articles that will dive deeper into different trends discussed in this article will be released over the next few weeks.
Many financial advisors are still seeing the insurers with which they do business raise prices, decrease benefits and features, discontinue products and, in some cases, even exit the business. Despite the somewhat steady growth of the US economy in early 2012, the global economic outlook looks less certain. And, unfortunately, an extended period of historically low interest rates and increased pressure on insurer profitability looks more certain. These concerns will continue to have a negative impact on annuity writers and will send companies in search of sustainable, yet profitable, product designs. As a result, we expect to see an ongoing revamp of products, features and investment options during the remainder of 2012 and into 2013.
Product trends in 2012 continue to focus on restructuring living benefits on variable annuities. Some companies have decreased the withdrawal percentages (the amount of the income base that a policy owner can withdraw each year) and bonuses, increased the charges or made the investment options more restrictive. Others have introduced new, less-competitive benefits and pulled the richer ones from the market.
Source: Ernst & Young’s Retirement Income Knowledge Bank®
The potential size of the contingent deferred annuities market is significant and attractive to the insurers that would underwrite the solutions. But it remains to be seen whether contingent deferred annuities can be effectively marketed and sold in a market where many buyers would not otherwise consider a variable annuity.
It is clear that the insurance industry will continue to focus on the safety of annuities and the unparalleled levels of guaranteed income that they offer for clients in retirement. However, the industry needs to continue to innovate so that product lineups remain vital and sustainable in light of global economic uncertainty with less-than-confident consumers. All of this looks like a lot of change to those in the industry. To clients, it will be a challenge to make informed decisions. The demands on financial advisors to help clients understand the products available to them today, the value of what they may already hold in their portfolios and the way to think about the value of annuities going forward will certainly be high. Advisors who meet these demands head-on will earn and retain their clients’ trust.
Over the next few weeks, we’ll dive deeper into the continuing change and innovations in each of the areas that we’ve just discussed. Next month, we’ll cover the variable annuity space and how some of the innovation to maintain the product in a company’s lineup may make for simpler conversations and, in some cases, may require new ways to talk about the guarantees.