Annuities Face Tough Headwinds, But Bright Future Overall

Annuities might be down, but they are not out.

In fact, the global pandemic and associated economic disruption, punctuated by ultra-low interest rates, might be giving annuity manufacturers the time out needed to build toward a sales resurgence. A panel is slated to discuss the possibilities Wednesday at the LIMRA virtual annual conference.

"The value proposition with annuity products is there," said Todd Giesing, senior director, annuity research, Secure Retirement Institute. "We have that unique value proposition of guaranteed income protection out there in the marketplace, and a demographic in our favor. There's just under 4 million people turning 65 in 2020. And we expect that to only grow as we move forward."

Moderated by Giesing, the session titled "The Future of Annuities" was scheduled to feature executives from Morgan Stanley, Jackson National and Edward Jones.

Annuities could benefit from the time out for three reasons:

Allow technology to catch up. One of the few benefits from the pandemic is the growing development and acceptance of technology by insurers. The lack of traditional face-to-face contact is forcing many in the industry to communicate and process new business creatively.

And there is more work to do, Giesing said. Morgan Stanley, for example, is beginning to integrate technology and artificial intelligence.

"If an advisor, for example, is searching mutual funds, you can also search subaccounts within variable annuities to see if that makes a fit," Giesing explained. "They have a platform that gives advisors the next steps with a customer using some of this technology that they've integrated into their system to make it easier to provide the appropriate solutions to the client."

Development and acceptance of fee-based products. Fee-based annuity sales are stuck at about 3% for variable annuities and less than 1% for indexed annuities, Giesing said.

Despite a warming trend from the advisory world, sales have been slow to take off. A big reason for that goes back to technology, Giesing said.

"This could be the next opportunity for growth from an overall industry perspective," he said. "From my perspective, and what I've heard, it's not the value proposition of today's product, or the product themselves. It's more so just the operational hurdles of getting the proper platforms built and the integration of fee-based into a holistic portfolio and the annuity product into that."

Growing opportunities. SECURE II was introduced in a congressional committee Tuesday, following a similar track taken by the SECURE Act late last year. Among other things, the twin bills make it easier for advisors to include annuities inside retirement plans.

The SECURE Act provided a safe harbor for plan sponsors to include annuities. The final regulation is still being put together by the Department of Labor.

It comes down to the market for annuities only getting stronger, Giesing said.

The demand and the need is not going to go away," he said. "The demographics are very clear that fewer people have that backdrop of a pension as they enter retirement. And we have more people who are going to be entering retirement here in the future."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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