Just the Facts: An Annuity Plan

Consumers find annuities confusing and – thanks to a few vocal critics – they easily form negative opinions about the products.

That finding by Maslansky and Partners is probably not too surprising. The New York City-based firm reviewed “digital mentions” of annuities from the past year as part of its industry study.

The firm further concluded that insurance companies are part of the problem.

Stuffy traditional business practices, as well as language, do not help consumers get the message they need: that an annuity provides lifetime income guarantees against outliving your money, said Larry Moscow, partner at Maslansky.

“The industry itself has become extremely defensive in the way it talks about annuities,” Moscow said. “Rather than positioning annuities from a point of view of strength and where they might fit in, more often than not the conversation was positioned by critics.”

Maslansky’s findings will be presented today at the Insured Retirement Institute’s Marketing Summit 2016 in West Palm Beach, Fla. The biggest thing the industry can do to improve its market is to position annuities as a proactive payment on the future, Moscow said.

As it stands, few people see the products that way, added Clint Sievers, Maslansky vice president.

“We talked to relatively well-off folks, certainly folks who are confident in their retirement plans in general,” Sievers said. “Even among them, there was the underlying concern about whether I’m going to have enough money for the rest of my life.”

DOL Rule a Concern

A big portion of the conference is discussing the impact of the Department of Labor’s fiduciary rule.

The DOL rule would require a fiduciary standard of advice to anyone dealing with qualified retirement employer-sponsored plans and individual retirement accounts. The Office of Management and Budget is expected to publish the rule in the coming weeks.

New regulatory requirements could include hefty disclosures, and even a signed contract with customers prior to any discussion of certain annuities.

Those requirements add to the industry’s biggest perception obstacles.

“As soon as people hear that contract between you and the insurance company, all sorts of bells go off,” Moscow said. “It’s kind of scary and it’s kind of intimidating.”

The challenge for advisors to change the perception of annuities is to change the tenor of the conversation, Moscow explained. And that is not easy. In addition to regulatory pressures, vocal critics like Suzy Orman and Ken Fisher are constantly ripping annuities.

As part of its study, done in conjunction with MetLife, the Maslansky team tested various messages on annuities. Consumers responded much better to messages related to education and planning instead of to high-pressure sales, Moscow said.

For the most part, annuities fall right into that range of insurance products that include auto insurance, homeowners insurance and even life insurance. In other words, the boring, responsible adult thing to do.

“Those aren’t purchases that people look forward to, or get excited about,” Moscow said. “When you have annuities being positioned in that same insurance category, it’s much easier for people to reject them.”

The way to strengthen the annuity brand is to position it as an investment, he explained. People get excited about investments because they represent a future payment on a future dream.

Secure the Future

That’s what annuities do: secure a future for owners. And studies show that 80 to 85 percent of consumers who understand an annuity, and purchase one, are satisfied with the results.

“Now all of a sudden you’re not talking about a product that’s going to be sold to a person,” Moscow said. “You’re going to be talking about a tool that’s going to be part of a retirement package that should be right up there with funds from Fidelity or T. Rowe Price or others.”

Maslansky regularly studies annuity perceptions for the industry. The latest effort showed movement toward a “more neutral” position on the product, Moscow said. Yet, neutral does not mean educated.

“At the end of the day, the dominant emotion among consumers regarding annuities was confusion,” Sievers said.

But unlike other studies, the firm found stronger recognition of the amount of money needed to finance the post-employment years. In talking about retirement and annuities, consumers generally recognized they could live 20 to 30 years in retirement, he added, and that annuities could provide the income needed to fund that lengthy retirement.

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].

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