The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
By Linda Koco
According to a new strategic alliance announced yesterday, Allstate Financial will start selling fixed annuities manufactured and underwritten by ING U.S., effective in January.
The arrangement promises to rejigger the fixed annuity business, as ING seeks to beef up sales via Allstate’s captive agents while independent agency players assess possible impact and craft competitive strategy.
The cast of characters
ING sells fixed annuities through multiple distribution channels, including independent agents. The New York company is currently the 20th largest writer of fixed annuities in the country, according to third quarter sales estimates from LIMRA. It will soon operate as a stand-alone U.S.-based carrier under the name VOYA.
Its arrangement with Allstate will provide ING with access to Allstate’s exclusive (captive) agency channel.
At year-end 2012, this channel numbered 9,300 agencies, according to a company spokesperson.
Not all agents at these firms are licensed to sell fixed annuities or are actively engaged in that market, even if so licensed. In fact, many Allstate agents focus on property-casualty sales, especially of auto and homeowners insurance. But under the new alliance with ING, the Allstate agency force will have access to ING products, education and wholesaling, so sales may begin to ramp up in this channel.
The arrangement comes at a time when the end to sale of Allstate-branded annuities is rapidly approaching.
In July, Allstate had announced that it would cease issuing its own fixed annuities by year-end 2013. It also said it would exit independent agency distribution of fixed annuities via the sale of Lincoln Benefit Life (LBL), its well-known fixed annuity subsidiary, to Resolution Life Holdings, Inc. (The LBL sale rocked the life brokerage market, where LBL had been a strong player for many years.)
Both moves paved the way for Allstate to exit the direct manufacture and sale of annuities, a move the Northbrook, Ill., company said would enable it to focus on markets where the carrier has competitive advantage, such as in Allstate agency-sold life insurance and worksite benefits.
At the time, Allstate said it was planning to offer its exclusive agencies access to “third-party annuity companies” so the agencies could continue to meet customer protection and retirement needs.
The alliance with ING is the first such strategic alliance, said Don Civgin, Allstate president and chief executive officer, in announcing the arrangement. A company spokesperson said that Allstate plans to offer other third-party alliances in the future.
ING wants to expand
ING definitely sees its alliance with Allstate as a means of increasing it annuity sales. It “will help expand our growing footprint in the fixed annuity marketplace,” said Chad Tope, president of ING U.S. annuity and asset sales, in a statement.
That doesn’t necessarily mean the carrier has set its sights on moving up to 15th place from 20th place on LIMRA’s list of top 20 fixed annuity carriers, Tope told InsuranceNewsNet.
Instead, he said, ING is focusing on selling products that it can stand behind on a suitability basis, that provide profitable growth for the shareholders, that have value for the customer and that are good for ING’s distribution partners.
The products available for sale through the channel include ING Single Premium Immediate Annuity, ING Secure Index (a fixed indexed annuity), and ING Lifetime Income (a deferred fixed annuity with an indexed minimum guaranteed withdrawal benefit).
These are the same fixed annuities that ING sells through its other distribution channels, which include not only independent agents but also financial intermediaries, affiliated advisors and dedicated sales specialists. They will be written on ING paper, but the companies may do some co-branding for marketing purposes, said Tope
ING currently has no plans to develop proprietary products for sale through the Allstate channel. “The independents will sell the same ING fixed annuity products that the Allstate agents sell,” he said.
The arrangement with Allstate is a type of alternative distribution agreement for ING, with Allstate being the distributor. ING has established similar relationships with other firms (distributors) although on a smaller scale than this arrangement, Tope said.
ING will provide the Allstate agents with all product education. This will be via field meetings, web session, wholesaling support, etc. This is “easy for use to do,” Tope said, explaining that ING uses the same approach when educating its other distribution channels.
The education components will include not only products but also suitability, he said. In addition, ING will use an electronic order entry system to ensure that all suitability factors have been addressed and that applications are in good order concerning required information.
As for compensation, “ING will pay a gross dealer concession to Allstate, and the company will pay its reps,” Tope said. The concession includes allowances for agent commissions, as well as marketing and sponsorship.
The full risk related to the products remains with ING, he added.
Will the fact that Allstate agents are selling the same ING products that independent agents are selling create competition between the two channels?
It could happen that an individual independent agent could lose an ING annuity sale to an Allstate agent selling the same product, Tope allowed. But the market is “massive,” he said. It is so “broad and big” that it is unlikely that this would happen on a widespread basis.
The market to which he was referring is the retirement income market for middle-market customers, whom ING considers to be households with $100,000 to $500,000 in investable assets. ING’s vision is to be America’s retirement company, he said, and it wants to specialize in that market. The alliance with Allstate is a good fit for that, he said.
The alliance will operate on a “go-forward” basis. That means that Allstate will continue to manage its own in-force annuity block, said Tope. ING will manage policies sold, going forward.
Expectations are low for a burst of 1035 exchanges. A customer might transfer into an ING income annuity when it is time to take retirement income, Tope allowed, “but we don’t expect an influx of transfer business (i.e., 1035 exchanges from existing Allstate annuities into ING annuities). We will respect the policies that have already been sold.”
The slowly rising interest rate environment was not a factor in ING’s decision to enter the alliance, he said. “Anything we can get (from that) helps, and we’re all for that. But we don’t expect rates to vault up.” Hence, the products the company is selling are designed to provide retirement income in a low rate environment.
Ironically, low rates were one of the factors that spurred Allstate to exit the manufacture of fixed annuities. In its July announcement, the company said it was pulling out no only because it wanted to focus on areas of competitive advantage, but also to “reduce exposure to spread-based business and interest rates.”
The Allstate/ING alliance is still new, so producers and carriers in the independent agency business are still sorting out whether to respond and how. The emails will be flying and the water coolers will be busy, that is for sure.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at email@example.com.
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