The Best Interest Value of Annuity Guarantees

OXON HILL, Md. -- When it comes to its controversial fiduciary rule, the Department of Labor has assured the industry that cost isn’t the only factor that satisfies a best-interest standard.

In other words, agents and advisors don’t always have to recommend the lowest-priced option.

That is good news to insurers who say other factors are equally important to clients – factors such as income guarantees.

“There’s some data out there on how important having peace of mind and guaranteed income is to clients,” said Eric Henderson, senior vice president for life insurance and annuities at Nationwide. “A number of surveys show that that is more important than achieving a higher return.”

Henderson will participate in a panel on “The Value of Guarantees in a Fiduciary World” today at the LIMRA 2017 Annual Conference.

Certain annuity products do a good job providing later-in-life income protection, he said, but they might not be the lowest-cost products. The key is finding the right option for the client, Henderson said.

“They will cost more, but there’s a reason for that -- because you’re getting something for that additional cost,” he said. “Most clients tend to think ‘Give me protection first, and then within that construct, give me the highest return you can.’”

Americans who lived through the economic downturn of 2008 and 2009 would probably agree. Some people lost huge chunks of their portfolio during that market correction, and were forced to delay retirement.

Annuities perform a significant role in the portfolio: transfer of longevity risk to the insurance company. Many advisors recommend elevating the risk a bit with the remaining funds.

“People who have guarantees tend to invest more aggressively than people who don’t,” Henderson said.

Long a player in various annuity markets, Nationwide continues to aggressively court new products. Its purchase of Jefferson National one year ago gave Nationwide a foot in the fee-based annuity market.

In addition, a pilot program serving Arizona gives consumers a chance to purchase a deferred income annuity entirely online. While the sales numbers are low, Henderson said the company is learning plenty about what clients want.

“If an advisor is doing the right things by their clients, I think it’s incumbent on them to consider guarantees as part of that solution,” he said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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