By Chris J. Brown and Laura H. Varas
InsuranceNewsNet Magazine, March 2012
With the aging U.S. population, many financial professionals are hoping to see a steady rise in annuity sales in the years ahead, as Americans convert their nest eggs into predictable retirement income. Indeed, this uptick may have already begun, but consumers remain uneasy with annuities.
When conducting focus groups with older investors for our retirement and savings research firm, Hearts & Wallets, we often see annuity owners express embarrassment or even apologize for owning this product. Annuity manufacturers and marketers must confront this issue that has a major impact on annuity sales. Can the old adage that annuities are bought and not sold finally be turned on its head for the boomers, or even their children who are sobered by observing their parents’ woes?
Ultimately, the answer will depend on whether insurance companies can be sufficiently creative and flexible to transform the consumer experience amid changing technology, onerous regulations and consumer clutter. But there still is a lot that producers and marketers can do now.
Our data shows that the opportunity is increasing, especially among older, wealthy investors. The major hurdle is, however, that many Americans place little faith in these products and the companies behind them. Changing the perception of these firms and products remains a key challenge for anyone seeking to expand this market. And perhaps most importantly, for advisors who are challenged with helping millions of aging Americans generate a secure income from the assets they’ve worked decades to accumulate.
The Expanding Opportunity Among High-Net-Worth
Each year, Hearts & Wallets conducts its, “Investor Quantitative Panel,” which is an online survey of more than 4,500 U.S. households on their finances and financial attitudes, concerns, relationships and experiences. We analyze and publish this data in a series of syndicated “Insight Modules” and prepare customized analyses upon request.
Reviewing the data on the interest in and ownership of annuities reveals a prime opportunity for sellers and marketers of annuities. Although ownership of annuities among households in which the key decision maker is 55 or older remained relatively flat from 2010 to 2011, ownership among high-net-worth households (those with $2 million or more in investable assets, excluding real estate) rose from 42 percent to 46 percent. Hearts & Wallets’ annual marketing-sizing study, “Portrait of U.S. Household Wealth,” reveals that this segment controls roughly $9.4 trillion, 34 percent, of U.S. household investable assets.
Even more encouraging for annuity manufacturers and sellers is the percentage of these investors who say that they “don’t own an annuity [now], but are interested in learning more” about them, which jumped from 23 percent to 32 percent. At the same time, the potential resistance declined. The percentage of households that indicated that they “don’t own an annuity and are not interested” in them fell from 35 percent in 2010 to 22 percent in 2011. This suggests that selling annuities to older high-net-worth investors should be a lot easier in the future. However, other data collected by Hearts & Wallet suggests that, despite these numbers, annuity sales will remain difficult for the foreseeable future. But our research also reveals ways these difficulties can be overcome.
A Loss of Faith
Many investors have serious concerns about the reliability of insurance companies. As part of Hearts & Wallets,’ “Quantitative Panel: 2011,” we asked investors to rate several retirement income product and service concepts and their attributes, such as “income floor,” sustainable withdrawal and time-based buckets approaches. Some of the most interesting findings were investor opinions about the underlying attributes of each offering.